<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 1-6830
ORLEANS HOMEBUILDERS, INC.
(formerly FPA Corporation)
(Exact name of registrant as specified in its charter)
Delaware 59-0874323 One Greenwood Square, #101
(State or other jurisdiction of (I.R.S. Employer 3333 Street Road
incorporation or organization) Identification No.) Bensalem, PA 19020
(Address of Principal
Executive Office)
(215) 245-7500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title Name of Each Exchange
----- on which Registered
Common Stock, $.10 Par Value Per Share ---------------------
(also formerly registered under
Section 12(g) of the Act)................ American
14 1/2% Subordinated Debentures due
September 1, 2000........................ American
Securities Registered Pursuant to Section
12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
The aggregate market value of voting stock held by nonaffiliates of the
registrant as of September 11, 1998 was approximately $3,800,000.
Number of shares of outstanding Common Stock as of September 11, 1998 was
11,356,018, shares (excluding 1,342,113 shares held in Treasury).
Part III (except for information included under Part I relating to executive
officers of the registrant) is incorporated by reference from the proxy
statement for the annual meeting of Stockholders scheduled to be held in
December, 1998.
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TABLE OF CONTENTS
PART I
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ITEM 1. Business. 1
General 1
Residential Development 2
Operating Policies and Construction 4
Sales and Customer Financing and Land Policy 5
Joint Ventures and Government Regulation 6
Environmental Regulation and Litigation 7
Competition and Employees 7
Economic Conditions 8
ITEM 2. Properties.
Lease of Executive Offices 8
ITEM 3. Legal Proceedings 8
ITEM 4. Submission of Matters to a Vote of Security Holders 8
ITEM 4A. Executive Officers of the Registrant 9
PART II
-------
ITEM 5. Market for Registrant's Common Stock and
Related Stockholder Matters 10
ITEM 6. Selected Financial Data 11
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
ITEM 7A. Quantitative and Qualitative Disclosures About
Market Risk 19
ITEM 8. Financial Statements and Supplementary Data 20
ITEM 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 42
PART III
--------
ITEM 10. Directors and Executive Officers of Registrant 42
ITEM 11. Executive Compensation 42
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management 42
ITEM 13. Certain Relationships and Related Transactions 42
PART IV
-------
ITEM 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 42
</TABLE>
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Item l. Business.
- ------- ---------
General
- -------
Effective July 1998, the Registrant (formerly FPA Corporation)
changed its name to Orleans Homebuilders, Inc. ("OHB") (the "Company"). The
Company believes that changing its name will be beneficial because it
capitalizes on the positive name recognition associated with the Orleans
Family, which has been one of the preeminent home builders in the region for
80 years. The Company develops residential communities in southeastern
Pennsylvania and central and southern New Jersey. The Company's operations in
Pennsylvania and New Jersey are in the Philadelphia metropolitan area,
primarily in Bucks, Chester and Delaware Counties in Pennsylvania and in
Burlington, Camden and Gloucester counties in New Jersey. During fiscal 1997,
the Company commenced development of communities in Chester and Delaware
Counties in Pennsylvania and is further endeavoring to increase its scope of
operations in these counties. In addition, during fiscal 1997, the Company
commenced development in the Princeton, New Jersey area. During fiscal 1998,
the Company purchased land adjacent to counties in which the Company already
operates, in Somerset County in Central New Jersey. The Company plans to
commence operations in this county in fiscal 1999.
The Company operates as both a developer and builder. The Company
builds and sells condominiums, townhouses and single-family homes; and sells
land and developed homesites. During the fiscal year ended June 30, 1998, the
Company delivered 589 residential units as compared to 562 units in fiscal
1997. Revenues earned from residential property activities during fiscal 1998
were $106,246,000. During fiscal 1997, revenues earned from residential
property activities were $96,104,000. At June 30, 1998, the Company's backlog
was $70,995,000, representing 340 units, compared to $38,260,000 and 210
units, at June 30, 1997. In addition, as of June 30, 1998, there were
reservation deposits relating to 37 units at the Company's various
developments which had an aggregate sales value of $7,162,000, as compared to
24 units aggregating $4,440,000 at June 30, 1997.
The Company's predecessor, Florida Palm-Aire Corporation, was formed
in 1959 and was merged into Orleans Homebuilders, Inc., which had been
incorporated in Delaware on September 4, 1969. In 1965, the late Marvin
Orleans and Orleans Construction Co., a general partnership substantially
owned and controlled by Marvin Orleans and his late father, A.P. Orleans,
acquired the controlling interest in the Company. In 1993, the Company
acquired Orleans Construction Corp. ("OCC") from Jeffrey P. Orleans. Unless
otherwise indicated, the terms the "Company" and "OHB" include Orleans
Homebuilders, Inc.
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(formerly FPA Corporation) and all of its Subsidiaries.
Jeffrey P. Orleans, the son of Marvin Orleans and Chairman of the
Board and Chief Executive Officer of the Company, owns, directly or
indirectly, approximately 7,232,708 shares of Common Stock, par value $.10 per
share ("Common Stock"), which represents approximately 63.7% of the
outstanding shares, excluding treasury shares, as of September 11, 1998. If
Mr. Orleans were to convert his Convertible Subordinated 7% Note (See Note 8
of Notes to Consolidated Financial Statements) into common shares, he would
then own 69.1% of the then outstanding shares. Further, if Mr. Orleans were to
convert his Series D Preferred Stock (See Note 13 of Notes to Consolidated
Financial Statements) into common shares, he would then own 73.1% of the then
outstanding shares.
Residential Development
- -----------------------
The Company's activities in developing residential communities
include the sale of residential properties and the sale of land and developed
homesites to independent builders. The Company participates in joint ventures
in certain of these activities.
The following table sets forth certain information at June 30, 1998
with respect to land holdings, active communities of the Company under
development and those where construction is expected to commence in the near
future.
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RESIDENTIAL DEVELOPMENTS AS OF JUNE 30, 1998
--------------------------------------------
<TABLE>
<CAPTION>
No. of Total Units Total Units Total Units Reservation Unit Price Remaining
------- ----------- ----------- ----------- ----------- ---------- ---------
State Communities Approved Delivered Under Contract Deposits Range(1) Approved Units(2)
- ----- ----------- -------- --------- -------------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
PA 15 1,370 782 122 15 $ 115,000 451
$ 450,000
NJ 25 3,311 1,376 218 22 $ 110,000 1,695
------ ----- ------- --- --- $ 360,000 -----
40 4,681 2,158 340 37 2,146
</TABLE>
1. Range of base prices of residential dwelling units currently being
offered for sale by the Company. In addition, the Company sells
homesites from time to time at its various developments to
unaffiliated builders at prices substantially lower than its dwelling
units.
2. Although zoning and certain preliminary master plan approvals have
been received for these units, final plans are subject to substantial
review and approval by appropriate governmental agencies. No
assurance can be given that the Company will be able to obtain the
required final approvals for the indicated units or will ultimately
elect to develop the properties in accordance with presently
anticipated development plans.
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The following table sets forth certain detail as to residential sales
activity. The information provided is for the twelve months ended June 30,
1998, 1997 and 1996 in the case of revenues earned and new orders, and as of
June 30, 1998, 1997 and 1996 in the case of backlog.
Year Ended June 30,
---------------------------------------
1998* 1997* 1996
----- ----- ----
(Dollars in Thousands)
Revenues earned $106,246 $ 96,104 $ 86,061
Units 589 562 531
Average price per unit $ 180 $ 171 $ 162
New orders $139,129 $ 94,158 $ 80,438
Units 719 553 486
Average price per unit $ 194 $ 170 $ 166
Backlog $ 70,995 $ 38,260 $ 40,206
Units 340 210 219
Average price per unit $ 209 $ 182 $ 184
* Included in new order data for fiscal 1997 are 31 low income housing units
to be purchased by Jeffrey P. Orleans, Chairman and Chief Executive Officer of
the Company. The units had an aggregate sales value of $1.8 million. Five such
units were delivered in fiscal 1997 and the remaining 26 units, with an
aggregate sales value of $1.4 million, are included in backlog data at June
30, 1997 and fiscal 1998 revenues. The selling prices for these units, which
are determined by state statute, are the same as if the units had been sold to
unaffiliated third parties. These transactions will satisfy, in part, the
Company's low income housing requirements in Mount Laurel Township, New
Jersey.
Operating Policies
- ------------------
Construction
------------
The Company has historically designed its own products with the
assistance of unaffiliated architectural firms as well as supervised the
development and building of its projects. When the Company constructs units,
it acts as a general contractor and employs subcontractors at specified prices
for the installation of site improvements and construction of its residential
units. Agreements with subcontractors provide for a fixed price for work
performed or materials supplied and are generally short-term.
The Company does not manufacture any of the materials or other items
used in the development of its projects, nor does the Company maintain
substantial inventories of materials. Standard building materials, appliances
and other components are purchased in volume. The Company has not experienced
significant delays in obtaining materials needed by it to date and has
long-standing relationships with many of its major suppliers and contractors.
None of the Company's suppliers accounted for more than 10% of the Company's
total purchases in the fiscal year ended June 30, 1998.
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Sales and Customer Financing
----------------------------
The Company conducts a marketing program that is directed to
purchasers of primary residences. In Pennsylvania and New Jersey, A.P. Orleans
Inc., a wholly-owned subsidiary of the Company, is the exclusive sales agent.
Model homes and sales centers are constructed to promote sales. A
variety of custom changes are permitted at the request of purchasers. The
Company advertises extensively using newspapers, billboards and other types of
media. The Company also uses brochures to describe each community.
The Company's customers generally require mortgage financing to
complete their purchases. During fiscal 1996, the Company established a
mortgage department to assist its home buyers in obtaining financing from
unaffiliated lenders. The Company receives a fee for its services.
The Company applies for project financing approvals from the Federal
Housing Administration, the Veterans Administration and the Federal National
Mortgage Association for many of its moderately priced communities. These
approvals assist customers in their ability to obtain competitive fixed and
adjustable rate mortgages with moderate down payments and liberal underwriting
requirements. The Company has obtained approvals for most projects and
anticipates additional approvals during fiscal 1999; however, there can be no
assurance that additional approvals will be obtained.
Land Policy
-----------
The Company acquires land in order to provide an adequate and
well-located supply for its residential building operations. In evaluating
possible opportunities to acquire land, the Company considers such factors as
the feasibility of development, proximity to developed areas, population
growth patterns, customer preferences, estimated cost of development and
availability and cost of financing.
As of June 30, 1998, the Company had contracted to purchase fourteen
additional tracts for an aggregate purchase price of approximately
$54,300,000. The Company anticipates completing a majority of these
acquisitions during fiscal 1999 and 2000.
The Company will continue to monitor economic and market conditions
for residential units in each of its various communities in assessing the
relative desirability of constructing units or selling parcels to other
builders.
The Company engages in many phases of development activity, including
land and site planning, obtaining environmental and other regulatory
approvals, construction of roads, sewer, water and drainage facilities,
recreation facilities and other amenities.
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Joint Ventures
--------------
From time to time, the Company has developed and owned projects
through joint ventures with other parties.
As discussed in Note 1 of Notes to Consolidated Financial Statements,
the Company, through a wholly owned subsidiary, is the General Partner in
Versailles Associates, L.P., a limited partnership with private investors to
purchase and develop a 102 multi-family unit community in Cherry Hill, New
Jersey. As of June 30, 1998, all units have been delivered and liquidation of
the partnership is expected to occur in fiscal 1999.
As also discussed in Note 1 of Notes to Consolidated Financial
Statements, OCC has entered into a joint venture with Bridlewood Associates,
L.P. OCC is the general partner in this limited partnership formed to develop
an 85 acre parcel of land in Mount Laurel, New Jersey. As of June 30, 1998,
one unit remains to be sold. Liquidation of the partnership is expected to
occur in fiscal 1999.
Determinations by the Company to enter into joint ventures have
traditionally been based upon a number of factors, including principally an
alternative source for land acquisition financing. At the present time joint
venture activities do not constitute a material portion of the Company's
operations.
Government Regulation
---------------------
The Company and its subcontractors are subject to continuing
compliance requirements of various federal, state and local statutes,
ordinances, rules and regulations regarding zoning, plumbing, heating, air
conditioning and electrical systems, building permits and similar matters. The
intensity of development in recent years in areas in which the Company is
actively developing real estate has resulted in increased restrictive
regulation and moratoriums by governments with respect to density, sewer,
water, ecological and similar matters. Further expansion and development will
require prior approval of federal, state and local authorities and may result
in delay or curtailment of development activities and costly compliance
programs.
In January 1983, the New Jersey Supreme Court rendered a decision
known as the "Mount Laurel II" decision, which has the effect of requiring
certain municipalities in New Jersey to provide housing for persons of low and
moderate income. In order to comply with such requirements, municipalities in
that state may require developers, including the Company, in connection with
the development of residential communities, to contribute funds, on a per unit
basis, or otherwise assist in the achievement of a fair share of low or
moderate housing in such municipalities.
In recent years, regulation by federal and state authorities relating
to the sale and advertising of condominium interests and residential real
estate has become more restrictive and intense. In order to
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advertise and sell condominiums and residential real estate in many
jurisdictions, including Pennsylvania and New Jersey, the Company has been
required to prepare a registration statement or other disclosure document and,
in some cases, to file such materials with a designated regulatory agency.
Despite the Company's past ability to obtain necessary permits and
authorizations for its projects, more stringent requirements may be imposed on
developers and home builders in the future. Although the Company cannot
predict the effect of such requirements, they could result in time-consuming
and expensive compliance programs and substantial expenditures for
environmental controls which could have a material adverse effect on the
results of operations of the Company. In addition, the continued effectiveness
of permits already granted is subject to many factors, including changes in
policies, rules and regulations and their interpretation and application,
which are beyond the Company's control.
Environmental Regulation and Litigation
---------------------------------------
Development and sale of real property creates a potential for
environmental liability on the part of the developer, owner, or any mortgage
lender for its own acts or omissions as well as those of current or prior
owners of the subject property or adjacent parcels. If hazardous substances
are discovered on or emanating from any of the Company's properties, the owner
or operator of the property (including the prior owners) may be held liable
for costs and liabilities relating to such hazardous substances. Environmental
studies are undertaken in connection with property acquisitions by the
Company. Further governmental regulation on environmental matters affecting
residential development could impose substantial additional expense to the
Company, which could adversely affect the results of operations of the Company
or the value of properties owned, or under contract to purchase by the
Company. (See Note 12 of Notes to Consolidated Financial Statements for a
discussion of specific environmental litigation.)
Competition
-----------
The real estate industry is highly competitive. The Company competes
on the basis of its reputation, location, design, price, financing programs,
quality of product and related amenities, with regional and national home
builders in its areas of development, some of which have greater sales,
financial resources and geographical diversity than the Company. Numerous
local residential builders and individual resales of residential units and
homesites provide additional competition.
Employees
---------
The Company, as of June 30, 1998, employed 177 persons, 56 of whom
were executive, administrative and clerical personnel, 48 were sales
personnel, and 73 were construction supervisory personnel and laborers.
The level of construction and sales employees varies throughout the
year in relation to the level
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of activities at the Company's various developments. The Company has had no
major work stoppages and considers its relations with employees to be good.
Economic Conditions
-------------------
The Company's business is affected by general economic conditions in
the United States and its related regions and particularly by the level of
interest rates. The Company cannot predict whether interest rates will be at
levels attractive to prospective home buyers or whether mortgage and
construction financing will continue to be available.
Item 2. Properties.
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Lease of Executive Offices
--------------------------
Except as noted below, the Company's real property assets are
described under Item 1 - Business.
The Company is currently leasing office space comprising
approximately 12,000 square feet at One Greenwood Square at 3333 Street Road,
Bensalem, Pennsylvania. The annual rent is $199,000 with a lease expiring in
December, 2001.
Item 3. Legal Proceedings.
- ------- ------------------
The Company is a plaintiff or defendant in various cases
arising out of its usual and customary business. The Company believes that it
has adequate insurance or meritorious defenses in all pending cases in which
it is a defendant and that adverse decisions in any or all of the cases would
not have a material effect upon the Company. (See Note 12 of Notes to
Consolidated Financial Statements for a discussion of specific litigation).
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
On April 20, 1998, the Board of Directors of the Company
approved and recommended to the stockholders of the Company an amendment (the
"Amendment") to its Certificate of Incorporation changing the Company's name
to "Orleans Homebuilders, Inc." On May 11, 1998, pursuant to Section 228 of
the Delaware General Corporation Law, Mr. Jeffrey P. Orleans, the record
holder of 7,085,675 shares, or approximately 62.4% of the Company's issued and
outstanding shares of Common Stock on that date, approved by written consent
(the "Consent") the Amendment. On or about June 22, 1998, pursuant to Rule
14c-2 of the Exchange Act, the Company mailed to the holders of Common Stock
an Information Statement advising them of the adoption of the Amendment
pursuant to the Consent. The Amendment was filed with the Secretary of State
of the State of Delaware on, and became effective as of, July 13, 1998.
See Item 1 - Business for the potential benefits of the Amendment.
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Item 4A. Executive Officers of the Registrant.
- -------- -------------------------------------
The following list contains certain information relative to
executive officers of the Company. There are no family relationships among any
executive officers. The term of each executive officer expires at the next
annual meeting of the Board of Directors following the annual meeting of
Stockholders scheduled to be held in December, 1998 or until their successors
are duly elected and qualified.
<TABLE>
<CAPTION>
Position Principal occupation and offices
Name Age or office past 5 years
- ---------- --- --------- ------------
<S> <C> <C> <C>
Jeffrey P. 52 Chairman of the Board Served as Chairman of the Board and
Orleans and Chief Executive Officer Chief Executive Officer since September 1986.
Benjamin D. 52 Vice Chairman and Director Elected Vice Chairman in April
Goldman 1998. Goldman Served as President
from May 1992 to April 1998. Has
served as a Director of the Company
since May 1992.
Michael T. 39 President and Chief Elected President and Chief Operating
Vesey Operating Officer Officer in April 1998. Served as
Executive Vice President from July
1994 through April 1998. Prior to
July 1994, he was responsible for
project management of the Company's
Pennsylvania communities.
Joseph A. 44 Chief Financial Officer, Elected Chief Financial Officer of the
Santangelo Treasurer and Secretary Company in July 1994. He was
elected Secretary of the Company in
May 1992 and has been Treasurer
since joining the Company in March
1987. He is a Certified Public
Accountant.
</TABLE>
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Item 5. Market for Registrant's Common Stock and
- ------- Related Stockholder Matters.
---------------------------
The principal market on which the Company's Common Stock is
traded is the American Stock Exchange, Inc. Effective July 1998, in conjunction
with the Company's name change to Orleans Homebuilders, Inc., the Company's
ticker symbol was changed from "FPO" to "OHB". (Symbol: OHB)
The high and low sales prices on the Exchange for the
periods indicated are as follows:
Fiscal year
ended June 30, High Low
-------------- ---- ---
1997 First Quarter $ 1.188 $ 1.000
Second Quarter 1.125 .875
Third Quarter 1.625 .938
Fourth Quarter 1.188 .750
1998 First Quarter $ 1.125 $ .750
Second Quarter 1.625 .813
Third Quarter 1.438 .938
Fourth Quarter 2.938 1.125
The number of common stockholders of record of the Company as of
September 11, 1998 was 320.
The Company has not paid a cash dividend since December 1982. Payment
of dividends will depend upon the earnings of the Company, its funds derived
from operations, its working capital needs, its debt service requirements, its
general financial condition and other factors (including, without limitation,
certain agreements). No assurance can be given that the Company will pay
dividends in the future.
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Item 6. Selected Financial Data.
- ------- ------------------------
The following table sets forth selected financial data for the
Company and should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included under Item 8 of this Form 10-K.
<TABLE>
<CAPTION>
(In thousands except per share data)
Year Ended June 30,
-------------------------------------------------------------------------
Operating Data(1) 1998 1997 1996 1995 1994(2)
- ----------------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Earned revenues $ 108,998 $ 101,996 $ 94,359 $ 107,840 $ 66,618
Income (loss) from
operations 1,668 1,615 1,235 1,201 (766)
Income (loss) per
share from continuing
operations:
Basic .15 .14 .11 .10 (.07)
Diluted .14 .14 .10 .10 (.07)
June 30,
-------------------------------------------------------------------------
Balance Sheet Data 1998 1997 1996 1995 1994(3)
- ------------------ ---- ---- ---- ---- -------
Residential properties $ 47,209 $ 35,355 $ 34,263 $ 35,757 $ 35,016
Land and improvements 64,044 60,067 46,654 52,921 46,681
Total assets 130,525 107,613 92,866 102,274 97,754
Mortgage obligations
secured by real estate 65,136 53,637 42,524 40,721 36,806
Senior notes -- -- -- 371 664
Subordinated
debentures 601 601 618 2,231 2,363
Other notes payable 14,970 13,618 12,782 13,112 13,928
Shareholders' equity 17,719 16,051 13,949 12,146 10,945
</TABLE>
- ----------------
(1) The Company has not paid a cash dividend since December 1982.
(2) Includes results of operations of OCC from October 22, 1993 (date of
acquisition) through June 30, 1994.
(3) Includes balance sheet data of OCC, acquired by the Company on
October 22, 1993.
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Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations
- ---------------------
Liquidity and Capital Resources
- -------------------------------
The Company requires capital to purchase and develop land, to
construct units, to fund related carrying costs and overhead and to fund
various advertising and marketing programs to facilitate sales. The Company's
sources of capital include funds derived from operations, sales of assets and
various borrowings, most of which are secured. At June 30, 1998, the Company
had approximately $56,674,000 available to be drawn under existing secured
revolving and construction loans for planned development expenditures. These
expenditures include site preparation, roads, water and sewer lines, impact
fees and earthwork, as well as the construction costs of the homes and
amenities. The Company believes that the funds generated from operations and
financing commitments from commercial lenders will provide the Company with
sufficient capital to meet its operating needs through fiscal 1999.
The Company has continued its ongoing land acquisition efforts
during fiscal 1998. During this period, the Company acquired twelve additional
parcels of land with an aggregate purchase price of approximately $12,421,000.
Marketing activities had commenced on a majority of these communities as of
June 30, 1998. The remaining communities will commence marketing activities in
fiscal 1999.
The Company is continuing to expand its land acquisition
efforts. As of June 30, 1998, the Company had contracted to purchase fourteen
additional tracts for an aggregate purchase price of approximately
$54,300,000. These purchase agreements are subject to due diligence review and
are contingent upon the receipt of governmental approvals. The Company expects
to utilize purchase money mortgages, secured financings and existing capital
resources to finance these acquisitions. The Company anticipates completing a
majority of these acquisitions during fiscal 1999 and 2000.
Overview of Operations
- ----------------------
The tables included in "Item 1 - Business" summarize the
Company's revenues, new orders and backlog data for the year ended June 30,
1998 with comparable data for fiscal 1997 and 1996.
New orders for fiscal 1998 increased by approximately 48% to
$139,129,000 on 719 units compared to $94,158,000 on 553 units during fiscal
1997. The Company continues to expand its geographic marketing areas within
Pennsylvania and New Jersey with new communities primarily in the same or
adjacent counties to its existing development projects. This increase in new
orders resulted from the opening of eight additional selling communities in
fiscal 1998, including two new communities in Mount Laurel, Evesham and
Lumberton Townships in Burlington County, as well as in Princeton Township in
Mercer County, and Gloucester Township in Camden County. The average price per
unit of revenues earned and new orders increased due to a change in product
mix towards higher priced townhouse and
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single family homes, along with the settlement of fewer condominiums, as well
as price increases at certain existing communities. The Company expects this
trend to continue.
The dollar backlog at June 30, 1998 increased approximately 86%
to $70,995,000 on 340 homes, as compared to the backlog at June 30, 1997 of
$38,260,000 on 210 homes. The Company's continued geographic diversification
with its new communities, coupled with favorable economic conditions and
consumer sentiment, resulted in the increased backlog level. The Company
anticipates delivering substantially all of its backlog units during fiscal
1999.
Inflation
- ---------
Inflation can have a significant impact on the Company's
liquidity. Rising costs of land, materials, labor, interest and administrative
costs have generally been recoverable in prior years through increased selling
prices. The Company has been able to increase prices to cover portions of
these costs. However, there is no assurance the Company will be able to
continue to increase prices to cover the effects of inflation in the future.
Year 2000
- ---------
The Company began assessing its Year 2000 ("Y2K") compliance
issues at the beginning of fiscal 1998 and at that time, determined that its
primary internal computer hardware and computer software were not Y2K
compliant. Subsequently, the Company determined that it would be more cost
efficient to install a new Y2K compliant software package than to modify the
existing software package. In September 1998, after significant review of
various software packages, the Company contracted to purchase a new software
package, including several specific enhancements to modify the software to
meet the Company's needs. As part of the Company's contingency plan, in order
to mitigate the risks associated with the possibility that the software
enhancements will not be completed on time, the Company has required that the
base software package be placed in escrow. The Company believes that
implementation of the base software package will require substantially less
time than the enhanced software package. In addition, the Company has proposed
to upgrade its existing primary computer hardware system to support the new
computer software package. The Company is currently in the process of
installing new hardware and software for the application development stage of
its Y2K computer compliance program and the Company's goal is to complete the
final phase, implementation, by June 30, 1999.
The Company is also investigating the Y2K compliance status of
its vendors, subcontractors and suppliers through the Company's own internal
vendor compliance effort. This investigation is in its preliminary stages and
the Company's goal is to complete this investigation, as well as any
corrective efforts by March 31, 1999. Since the Company does not rely on any
individual vendor, subcontractor or supplier for a significant portion of its
operations, the potential impact of Y2K non-compliance risks in this
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area are not considered significant to the Company.
The Company has incurred approximately $100,000 to date,
including consulting fees, internal staff costs and other expenses. The
Company expects to incur additional expenditures of approximately $500,000 in
the next fiscal year to be Y2K compliant.
While the Company believes it is taking all appropriate steps to
achieve internal Y2K compliance, any potential future business interruptions,
costs, damages or losses related thereto, are also dependent upon the Y2K
compliance of third parties. In the event that the Company or any of the
Company's significant vendors, subcontractors or suppliers experience
disruptions due to the Y2K issue, the Company's operations could be adversely
affected. The Y2K issue is universal and complex, as virtually every computer
operation will be affected in some way. Consequently, no assurance can be
given that complete Y2K compliance can be achieved without significant
additional costs.
Forward Looking Statement
- -------------------------
The Company's estimates of costs and completion dates for its Y2K
readiness program represent management's best estimates. These estimates are
based upon many assumptions, including the availability of external resources
to assist with systems remediation and replacement efforts, key third party
suppliers, vendors and customers being Y2K compliant and in the event of
non-compliance, the Company's execution of its contingency plans.
Fiscal Years Ended June 30, 1998 and 1997
-----------------------------------------
Results of Operations
- ---------------------
Operating Revenues
------------------
Earned revenues for fiscal 1998 increased $7,002,000, or 6.9%,
compared with fiscal 1997. Residential property revenues (including related
party amounts) for fiscal 1998 increased $10,142,000, or 10.6%, compared with
fiscal 1997. Revenues from the sale of residential homes included 589 homes
totaling $106,246,000 compared to 562 homes totaling $96,104,000 during fiscal
1997. The increase in revenues for fiscal 1998 is attributed to an increase in
the number of units sold which is the result of the expanding geographic scope
of the Company's operations and favorable economic conditions affecting unit
sale volume. In addition, the average selling price per unit has increased to
approximately $180,000 per unit during fiscal 1998 from $171,000 per unit
during fiscal 1997. The increase in average selling price is due to a change
in product mix towards larger townhouse and single family homes and less
condominiums than in the previous year, as well as price increases at certain
existing communities.
Fiscal 1998 related party residential property revenues included
26 low income homes with an aggregate sales value of approximately $1,400,000,
sold to Jeffrey P. Orleans, Chairman and Chief
14
<PAGE>
Executive Officer of the Company. These transactions satisfied, in part, the
Company's low income housing requirements in Mount Laurel Township, New
Jersey. The selling prices for these homes, which are determined by state
statute, are the same as if the homes had been sold to unaffiliated third
parties.
Revenue from land sales decreased approximately $2,742,000 or
71.2% compared with fiscal 1997. This decrease is primarily due to a decrease
in the number and size of developed homesites sold during fiscal 1998 compared
with fiscal 1997. Also, other income for fiscal 1998 decreased $398,000 or
19.5% compared with fiscal 1997. This decrease is primarily due to the fact
that fiscal 1997 other income included non-recurring income items totaling
approximately $632,000 from the final distribution of a joint venture
partnership and insurance proceeds in excess of expenses incurred from a 1995
fire which destroyed the Company's corporate offices.
Costs and Expenses
------------------
Costs and expenses for fiscal 1998 increased $6,369,000, or
6.4%, compared with fiscal 1997. This increase is primarily due to an increase
in the cost of residential properties sold and selling, general and
administrative expenses totaling $9,088,000, partially offset by a decrease in
the cost of land sales of $2,775,000. The fiscal 1998 cost of residential
properties increased $7,895,000, or 9.6%, when compared with fiscal 1997. This
increase in residential property costs is slightly less than the overall
percentage increase in residential property revenues when compared with fiscal
1997. Overall profit margins on residential properties improved nominally, due
to increased selling prices, as the cost of residential properties as a
percentage of residential property revenues was 85.1% in fiscal 1998 compared
with 85.9% in fiscal 1997. The decrease in the cost of land sales of
$2,775,000 or 75.7% when compared to fiscal 1997 is consistent with the
overall decrease in fiscal 1998 revenue from land sales. Profit margins on
land sales during fiscal 1998 improved to 19.7% from 4.8% during fiscal 1997.
Fiscal 1998 selling, general and administrative expenses
increased $1,193,000, or 9.6%, when compared with fiscal 1997. The fiscal 1998
increase in selling, general and administrative expenses is attributable to
start-up costs associated with the opening of communities in new regions,
along with having more overall communities open throughout fiscal 1998 when
compared with the prior year. The selling, general and administrative expenses
as a percentage of residential property revenues is relatively consistent with
the prior year.
Income Before Income Taxes
--------------------------
Income before income taxes increased $633,000, or 30.8%, to
$2,690,000 for fiscal 1998 compared with $2,057,000 during fiscal 1997. This
increase is primarily due to an increase in gross profit as a result of higher
residential property revenues, partially offset by an increase in selling,
general and administrative expenses necessary to support the increased
revenues.
15
<PAGE>
Income Tax Expense
------------------
The Company's effective tax rate for fiscal 1998 increased to
38.0% from 21.5% during fiscal 1997. The increase is due to the fact that
fiscal 1997 income tax expense was reduced as a result of the elimination of a
valuation allowance on certain tax assets. (See Note 10 of Notes to
Consolidated Financial Statements for more information.)
Income From Operations Before Extraordinary Income and Net Income
-----------------------------------------------------------------
Income from operations before extraordinary items was $1,668,000
or $.15 basic earnings per share for fiscal 1998, compared with $1,615,000 or
$.14 basic earnings per share during fiscal 1997. The current year increase in
income from operations before extraordinary item was offset by a higher
effective income tax rate in fiscal 1998 when compared with fiscal 1997.
Income from extraordinary items, net of tax expense, was
$594,000 or $.05 per share during fiscal 1997. Net income was $1,668,000 or
$.15 basic earnings per share for fiscal 1998, compared with $2,209,000 or
$.19 basic earnings per share during fiscal 1997. The fiscal 1997
extraordinary gain, net of tax expense and the change in effective tax rate,
accounts for substantially all of the decrease in net income during fiscal
1998 when compared with fiscal 1997.
16
<PAGE>
Fiscal Years Ended June 30, 1997 and 1996
-----------------------------------------
Results of Operations
- ---------------------
Operating Revenues
------------------
Earned revenues for fiscal 1997 increased $7,637,000 or 8.1%
compared to fiscal 1996. Residential property revenues for fiscal 1997
increased $10,043,000 or 11.7% compared with fiscal 1996. Revenues from the
sale of residential homes included 562 homes totaling $96,104,000 compared to
531 homes totaling $86,061,000 during fiscal 1996. This increase in revenues
is attributable to improvements in sales and home construction activities and
the trend toward more townhome and single family homes being sold by the
Company. Revenues from land sales decreased by $3,038,000 or 44.1% due to the
timing of these transactions.
Included in the increase in other income of $632,000 is
approximately $318,000 from a non-recurring final distribution in excess of
basis from a joint venture partnership received by the Company during fiscal
1997. The Company will have no future obligations or operating activities with
respect to this entity. Also included in other income is $302,000 from
insurance proceeds in excess of the expenses incurred and carrying costs of
the contents of the Company's corporate offices, which were destroyed by fire
in August, 1995.
Costs and Expenses
------------------
Costs and expenses for fiscal 1997 increased $6,433,000 or 6.9%
compared with fiscal 1996. The increase in cost of residential properties sold
of $8,963,000 or 12.2% coupled with the decrease in land sales of $2,854,000
or 43.8% are the principal components of the overall increase. These amounts
are consistent with the changes in earned revenues discussed previously.
Selling, general and administrative costs increased $1,064,000 or 9.4% due to
the increase in homes settled and start-up costs associated with the opening
of six new communities for sale.
Net interest expense decreased approximately $500,000 or 38.5%
as a result of the continued reduction in higher yield indebtedness, including
$1,522,000 of the Company's 14-1/2% Subordinated Debentures retired in June
1996 and the note obligations retired in July 1996, as discussed under
Extraordinary Items under this item.
As of June 30, 1997, the Company reduced its valuation allowance
from 50% to 0% on certain tax assets which were dependent on future taxable
income for realization. This conclusion was based on fiscal 1997 income before
income taxes of $2,057,000, representing a significant improvement over fiscal
1996 income before taxes of $853,000. As of June 30, 1997, given the three
consecutive years of profits and significant utilization of the existing
deferred tax asset, the Company believed it to be appropriate to further
adjust the valuation allowance to zero on its remaining tax assets.
17
<PAGE>
Extraordinary Items
- -------------------
In July, 1996, the Company completed a transaction to fully
satisfy notes payable with an outstanding balance of approximately $1,650,000
and reacquired 183,177 shares of Common Stock in exchange for a cash payment
of approximately $1,061,000. These shares have been retained by the Company as
Treasury Stock. This transaction resulted in an extraordinary gain of
$594,000, net of income tax expense of approximately $100,000 in fiscal 1997.
In June, 1996, the Company satisfied $1,522,000 of its then
outstanding Subordinated Debentures and related accrued interest for a cash
payment of $907,000. This transaction resulted in an extraordinary gain of
$523,000, net of income tax expense of $92,000 in fiscal 1996.
During the second quarter of fiscal 1996, the Company completed
a transaction to fully satisfy a note payable with an outstanding balance of
approximately $380,000 and reacquired 116,823 shares of Common Stock in
exchange for a cash payment of $235,000. These shares have been retained by
the Company as Treasury Stock. This transaction resulted in an extraordinary
gain of $170,000, net of income tax expense of $30,000 in fiscal 1996.
Net Income
- ----------
Net income for fiscal 1997 was $2,209,000 ($.19 basic earnings
per share) compared to fiscal 1996 net income of $1,928,000 ($.17 basic
earnings per share). This increase is due to increases in earnings from the
sale of residential properties, other income and the reduction in net interest
expense, all previously discussed under this Item. These amounts were somewhat
offset by a reduction in earnings from land sale activity and changes in the
valuation allowance for certain tax assets, also previously discussed.
18
<PAGE>
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
- ------------------------------------------------------------------------
Private Securities Litigation Reform Act of 1995.
- -------------------------------------------------
The following important factors, among others, in some cases have affected,
and in the future could affect, Orleans Homebuilders' actual results and could
cause Orleans Homebuilders' actual consolidated results to differ materially
from those expressed in any forward-looking statements made by, or on behalf
of Orleans Homebuilders, Inc.:
o changes in consumer confidence due to perceived uncertainty of
future employment opportunities and other factors;
o competition from national and local homebuilders in the
Company's market areas;
o building material price fluctuations;
o changes in mortgage interest rates charged to buyers of the
Company's units;
o changes in the availability and cost of financing for the
Company's operations, including land acquisition;
o revisions in federal, state and local tax laws which provide
incentives for home ownership;
o delays in obtaining land development permits as a result of (i)
federal, state and local environmental and other land
development regulations, (ii) actions taken or failed to be
taken by governmental agencies having authority to issue such
permits, and (iii) opposition from third parties; and
o increased cost of suitable development land.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
- -------- -----------------------------------------------------------
Market risk represents the risk of loss that may impact the
financial position, results of operations or cash flows of the Company, due to
adverse changes in financial and commodity market prices and interest rates.
The Company is exposed to market risk in the area of interest rate changes. A
majority of the Company's debt is variable based on the prime rate, and,
therefore, affected by changes in market interest rates. Based on current
operations, an increase in interest rates of 100 basis points will increase
cost of sales by approximately $500,000. Historically, the Company has been
able to increase prices to cover portions of any increase in interest rates.
As a result, the Company believes that reasonably possible near-term changes
in interest rates will not result in a material effect on future earnings,
fair values or cash flows of the Company.
19
<PAGE>
Item 8. Financial Statements and Supplementary Data.
- -------- --------------------------------------------
ORLEANS HOMEBUILDERS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of independent accountants 21
Consolidated balance sheets at June 30, 1998 22
and June 30, 1997
Consolidated statements of operations and retained 23
earnings for the years ended June 30, 1998,
1997 and 1996
Consolidated statements of cash flows for the
years ended June 30, 1998, 1997 and 1996 24
Notes to consolidated financial statements 25
All other schedules have been omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
The individual financial statements of the Registrant's
subsidiaries have been omitted since the Registrant is primarily an operating
company and all subsidiaries included in the consolidated financial
statements, in the aggregate, do not have minority equity interest and/or
indebtedness to any person other than the Registrant or its consolidated
subsidiaries in amounts which together exceed 5 percent of total consolidated
assets at June 30, 1998, excepting indebtedness incurred in the ordinary
course of business.
20
<PAGE>
Report of Independent Accountants
---------------------------------
To the Board of Directors and Shareholders
of Orleans Homebuilders, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Orleans Homebuilders, Inc. and its subsidiaries at June 30, 1998
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended June 30, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Philadelphia, PA
September 14, 1998
21
<PAGE>
Orleans Homebuilders, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
--------------------------------
1998 1997
--------------------------------
(In Thousands)
--------------------------------
<S> <C> <C>
Assets
Cash $ 2,833 $ 1,582
Restricted cash - customer deposits 3,902 1,924
Real estate held for development and sale:
Residential properties completed or
under construction 47,209 35,355
Land held for development or sale
and improvements 64,044 60,067
Property and equipment, at cost, less
accumulated depreciation 1,892 507
Receivables, deferred charges
and other assets 10,645 8,178
--------- ---------
$ 130,525 $ 107,613
========= =========
Liabilities and Shareholders' Equity
Liabilities
Accounts payable $ 15,378 $ 12,759
Accrued expenses 9,312 5,750
Customer deposits 3,902 1,924
Mortgage and other note obligations
primarily secured by real estate
held for development and sale 65,136 53,637
Subordinated debentures 601 601
Notes payable - related parties 12,052 10,721
Other notes payable 2,918 2,897
Deferred income taxes 2,961 2,587
Minority interests 546 686
--------- ---------
Total liabilities 112,806 91,562
--------- ---------
Commitments and contingencies
Shareholders' equity
Preferred stock, $1 par, 500,000
shares authorized
Common stock, $.10 par, 20,000,000
shares authorized, 12,698,131
shares issued at June 30, 1998 and 1997 1,270 1,270
Capital in excess of par value - common stock 17,726 17,726
Retained earnings (deficit) (299) (1,967)
Treasury stock, at cost (1,342,113
shares held at June 30, 1998 and 1997) (978) (978)
--------- ---------
Total Shareholders' equity 17,719 16,051
--------- ---------
$ 130,525 $ 107,613
========= =========
</TABLE>
See notes to consolidated financial statements
22
<PAGE>
Orleans Homebuilders, Inc. and Subsidiaries
Consolidated Statements of Operations
and Retained Earnings
<TABLE>
<CAPTION>
For the year ended June 30,
---------------------------
1998 1997 1996
---- ---- ----
(In Thousands, except per share data)
-------------------------------------
<S> <C> <C> <C>
Earned revenues
Residential properties $ 106,246 $ 96,104 $ 86,061
Land sales 1,109 3,851 6,889
Other income 1,643 2,041 1,409
- ---------------------------------------------------------------------------------------------------------
108,998 101,996 94,359
- ---------------------------------------------------------------------------------------------------------
Costs and expenses
Residential properties 90,404 82,509 73,546
Land sales 891 3,666 6,520
Other 784 603 798
Selling, general and administrative 13,573 12,380 11,316
Interest
Incurred 7,564 6,465 6,838
Less capitalized (6,786) (5,664) (5,538)
Minority interests (122) (20) 26
- ---------------------------------------------------------------------------------------------------------
106,308 99,939 93,506
- ---------------------------------------------------------------------------------------------------------
Income before income taxes 2,690 2,057 853
Income tax (expense) benefit (1,022) (442) 382
- ---------------------------------------------------------------------------------------------------------
Income from operations before
extraordinary items 1,668 1,615 1,235
- ---------------------------------------------------------------------------------------------------------
Extraordinary items, net -- 594 693
- ---------------------------------------------------------------------------------------------------------
Net income 1,668 2,209 1,928
Retained earnings (deficit) at
beginning of year (1,967) (4,176) (6,104)
- ---------------------------------------------------------------------------------------------------------
Retained earnings (deficit) at
end of year $ (299) $ (1,967) $ (4,176)
=========================================================================================================
Basic earnings per share:
Income before extraordinary items $ .15 $ .14 $ .11
Extraordinary gains -- .05 .06
- ---------------------------------------------------------------------------------------------------------
Total $ .15 $ .19 $ .17
=========================================================================================================
Diluted earnings per share:
Income before extraordinary items $ .14 $ .14 $ .10
Extraordinary gains -- .05 .06
- ---------------------------------------------------------------------------------------------------------
Total $ .14 $ .19 $ .16
=========================================================================================================
</TABLE>
See notes to consolidated financial statements
23
<PAGE>
Orleans Homebuilders, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the year ended June 30,
---------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,668 $ 2,209 $ 1,928
Adjustments to reconcile net
income to net cash used by
operating activities:
Extraordinary gains -- (594) (693)
Reduction in deferred tax asset
valuation allowance -- (528) (527)
Depreciation and amortization 214 128 128
Changes in operating assets and liabilities:
Restricted cash -customer deposits (1,978) 667 1,134
Real estate held for development
and sale (15,831) (14,505) 7,761
Receivables, deferred charges
and other assets (2,467) (1,905) 751
Accounts payable and other liabilities 6,415 1,908 (10,656)
Customer deposits 1,978 (667) (148)
- -------------------------------------------------------------------------------------------------------------
Net cash used by operating
activities (10,001) (13,287) (322)
- -------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (1,599) (167) (73)
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,599) (167) (73)
- -------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Borrowings from loans secured by real
estate assets 86,537 83,861 78,567
Repayment of loans secured by real
estate assets (75,038) (72,748) (75,345)
Repayment of subordinated debentures and
senior notes payable -- (17) (1,461)
Borrowings from other note obligations 3,752 10,826 5,597
Repayments of other note obligations (2,400) (9,396) (6,545)
Purchase of treasury stock -- (107) (125)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing
activities 12,851 12,419 688
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 1,251 (1,035) 293
Cash at beginning of year 1,582 2,617 2,324
- -------------------------------------------------------------------------------------------------------------
Cash at end of year $ 2,833 $ 1,582 $ 2,617
=============================================================================================================
</TABLE>
See notes to consolidated financial statements
24
<PAGE>
Orleans Homebuilders, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies
During fiscal 1998, the Company changed its name to Orleans Homebuilders, Inc.
("OHB") from FPA Corporation. Orleans Homebuilders, Inc. and its subsidiaries
(the Company) are currently engaged in residential real estate development in
Pennsylvania and New Jersey. A summary of the significant accounting principles
and practices used in the preparation of the consolidated financial statements
is as follows:
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. The financial statements
include the consolidated financial position and results of operations of
Versailles Associates, L.P., and Bridlewood Associates, L.P., joint ventures
in which a subsidiary of the Company is the sole General Partner. The outside
limited partners have been allocated their portion of the income or loss and
equity. These amounts are presented as minority interests in the financial
statements. All material intercompany transactions and accounts have been
eliminated.
Earned revenues from real estate transactions
The Company recognizes revenues from sales of residential properties at the
time of closing. The Company also sells developed and undeveloped land in bulk
and under option agreements. Revenues from sales of land and other real estate
are recognized when the Company has received an adequate cash down payment and
all other conditions necessary for profit recognition have been satisfied. To
the extent that certain sales or portions thereof do not meet all conditions
necessary for profit recognition, the Company uses other methods to recognize
profit, including cost recovery and the deposit methods. These methods of
profit recognition defer a portion or all of the profit to the extent it is
dependent upon the occurrence of future events.
Real estate capitalization and cost allocation
Residential properties completed or under construction are stated at cost or
estimated net realizable value, whichever is lower. Costs include land and
land improvements, direct construction costs, construction overhead costs,
interest on indebtedness and real estate taxes. Selling and advertising costs
are expensed as incurred. Total estimated costs of multi-unit developments are
allocated to individual units based upon specific identification methods.
Land and improvement costs include land, land improvements, interest on
indebtedness and real estate taxes. Appropriate costs are allocated to
projects on the basis of acreage, dwelling units and relative sales value.
Land held for development and sale and improvements are stated at cost or
estimated net realizable value, whichever is lower.
Land and land improvements applicable to condominiums, townhomes and
single-family homes, are transferred to construction in progress when
construction commences.
Interest costs included in Costs and Expenses of residential properties and
land sold for fiscal years 1998, 1997 and 1996 were $5,373,000, $5,617,000,
and $4,588,000, respectively.
25
<PAGE>
Advertising costs
The total amount of advertising costs charged to expense was $2,163,000,
$1,747,000 and $1,444,000 for the three years ended June 30, 1998, 1997 and
1996, respectively.
Depreciation, amortization and maintenance expense
Depreciation and amortization is primarily provided on the straight-line
method at rates calculated to amortize the cost of the assets over their
estimated useful lives. Expenditures for maintenance, repairs and minor
renewals are expensed as incurred; major renewals and betterments are
capitalized. At the time depreciable assets are retired or otherwise disposed
of, the cost and the accumulated depreciation of the assets are eliminated
from the accounts and any profit or loss is recognized.
Leases
The Company's leasing arrangements as lessee include the leasing of certain
office space, residential units and equipment. These leases have been
classified as operating leases.
Income taxes
The Company and its subsidiaries file a consolidated federal income tax
return. See Note 10 for an additional discussion of income tax matters.
Earnings per share
Effective in fiscal 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS No. 128
simplifies the earnings per share (EPS) calculation by replacing primary EPS
with basic EPS and fully diluted EPS with diluted EPS. All prior period EPS
information has been restated to conform to the new requirements.
Basic EPS is computed by dividing net income by the weighted average number of
common shares outstanding. The weighted average number of shares used to
compute basic EPS was 11,356,018 shares in fiscal 1998 and 1997, and
11,591,254 shares in fiscal 1996. Dilutive EPS includes additional common
shares that would have been outstanding if the dilutive potential common
shares had been issued. The Company's dilutive shares consist of stock options
granted to certain officers, directors and key employees of the Company.
Additional common shares that would have been outstanding if the dilutive
potential common shares had been issued was 209,750 shares in 1998, 148,048
shares in 1997 and 190,171 shares in 1996. The weighted average number of
shares used to compute diluted EPS was 11,565,768, 11,504,066 and 11,781,425
shares in fiscal 1998, 1997 and 1996, respectively.
A Convertible Subordinated 7% Note due January 1, 2002 issued to Jeffrey P.
Orleans, Chairman and Chief Executive Officer of the Company, in the amount of
$3,000,000 is convertible into common stock at $1.50 per share. This security
was not included in the above computation of diluted EPS because to do so
would be antidilutive.
Disclosures about fair value of financial instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires the Company to disclose the estimated fair market value of its
financial instruments. The Company believes that the carrying value of its
financial instruments (primarily mortgages receivable and mortgage notes
payable) approximates fair market value and that any differences are not
significant. This assessment is based upon substantially all of the Company's
debt obligations being based upon the prime rate of interest which is a
variable market rate.
26
<PAGE>
Reclassifications
Certain amounts in the accompanying financial statements have been
reclassified for comparative purposes.
Segment reporting
Since the Company operates primarily in a single extended geographical market
with similar products at its various development projects, it is considered to
represent a single operating segment for financial reporting purposes.
Management's estimates and assumptions
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Consolidated statements of cash flows
For purposes of reporting cash flows, short-term investments with original
maturities of ninety days or less are considered cash equivalents. Interest
payments, net of amounts capitalized, for fiscal 1998, 1997 and 1996, were
$459,000, $-0- and $143,000, respectively. Income taxes paid were $377,000,
$109,000 and $165,000 for fiscal 1998, 1997 and 1996, respectively.
In July, 1996, the Company completed a transaction to fully satisfy notes
payable with an outstanding balance of approximately $1,650,000 and reacquired
183,177 shares of Common Stock in exchange for a cash payment of approximately
$1,061,000. These shares have been retained by the Company as Treasury Stock.
This transaction resulted in an extraordinary gain of $594,000, net of income
tax expense of approximately $100,000.
During the second quarter of fiscal 1996, the Company completed a transaction
to fully satisfy a note payable with an outstanding balance of approximately
$380,000 and reacquired 116,823 shares of Common Stock in exchange for a cash
payment of $235,000. These shares have been retained by the Company as
Treasury Stock. This transaction resulted in an extraordinary gain of
approximately $170,000, net of income tax expense of approximately $30,000.
In June, 1996, the Company fully satisfied $1,522,000 of its then outstanding
Subordinated Debentures and related accrued interest for a cash payment of
$907,000. This transaction resulted in an extraordinary gain of $523,000, net
of income tax expense of $92,000.
Recent accounting pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income", which is effective for fiscal years
beginning after December 15, 1997 and establishes standards for the reporting
and display of comprehensive income and its components in a full set of
general purpose financial statements. The Company will adopt this standard
during fiscal 1999. The adoption of this standard will only affect financial
disclosure and therefore will not have an impact on the Company's financial
condition or results of operations. The Company does not expect comprehensive
income to be significantly different from net income.
In June, 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative
27
<PAGE>
Instruments and Hedging Activities". This statement provides new accounting
and reporting standards for use of derivative instruments. Management intends
to have the Company adopt this statement, as required by the provisions of
SFAS No. 133, effective July 1, 1999. Although not precluded from doing so,
the Company and its subsidiaries have not historically used such instruments
extensively and, accordingly, management does not believe adoption of SFAS No.
133 will have a material impact on the Company's financial statements.
Note 2. Extraordinary Items
In July, 1996, the Company completed a transaction to fully satisfy notes
payable with an outstanding balance of approximately $1,650,000 and reacquired
183,177 shares of Common Stock in exchange for a cash payment of approximately
$1,061,000. These shares have been retained by the Company as Treasury Stock.
This transaction resulted in an extraordinary gain of $594,000, net of income
tax expense of approximately $100,000 in fiscal 1997.
In June, 1996, the Company satisfied $1,522,000 of its then outstanding
Subordinated Debentures and related accrued interest for a cash payment of
$907,000. This transaction resulted in an extraordinary gain of $523,000, net
of income tax expense of $92,000 in fiscal 1996.
During the second quarter of fiscal 1996, the Company completed a transaction
to fully satisfy a note payable with an outstanding balance of approximately
$380,000 and reacquired 116,823 shares of Common Stock in exchange for a cash
payment of $235,000. These shares have been retained by the Company as
Treasury Stock. This transaction resulted in an extraordinary gain of
$170,000, net of income tax expense of $30,000 in fiscal 1996.
Note 3. Joint Ventures
During fiscal 1997, the Company received approximately $319,000 from a final
non-recurring distribution in excess of basis from a joint venture
partnership. The Company will have no future obligations or operating
activities with respect to this entity.
In October, 1992, a wholly owned subsidiary of the Company, Versailles at
Europa, Inc. was established to act as the General Partner in a newly formed
Versailles Associates, L.P. (the "Partnership"). The Partnership was formed to
purchase and develop a tract of land in Cherry Hill, New Jersey. The terms of
the Partnership Agreement provide that the General Partner be allocated 55% of
the net profits and losses of the Partnership and have exclusive management
and control over the development of the property. The financial statements of
the Partnership are included in the consolidated financial statements of the
Company. The limited partner's share of the income and capital from this
entity has been presented as minority interest in the accompanying
consolidated financial statements. As of June 30, 1998, all units have been
delivered and liquidation of the partnership is expected to occur in fiscal
1999.
Orleans Construction Corporation ("OCC"), a subsidiary of the Company, has
entered into a joint venture agreement with Bridlewood Associates, L.P., a
limited partnership formed to develop an 85 acre parcel of land in Mount
Laurel, New Jersey. OCC is the managing general partner. OCC and the limited
partner share equally in the profits or losses of the entity. The financial
statements of the Partnership are included in the consolidated financial
statements of the Company. The limited partner's share of the income and
capital from this entity has been presented as minority interest in the
accompanying consolidated financial
28
<PAGE>
statements. As of June 30, 1998, one unit remains to be sold. Liquidation of
the partnership is expected to occur in fiscal 1999.
Note 4. Certain Transactions with Related Parties
During fiscal 1998, Jeffrey P. Orleans, Chairman and Chief Executive Officer
of the Company, purchased 26 low income homes with an aggregate sales value of
approximately $1,400,000. These transactions satisfied, in part, the Company's
low income housing requirements in Mount Laurel Township, New Jersey. The
selling prices for these homes, which are determined by state statute, are the
same as if the homes had been sold to unaffiliated third parties.
Under the terms of an existing option agreement, the Company has exercised its
final option during fiscal 1997 to purchase sections of land from Orleans
Builders and Developers ("OB&D"), a limited partnership whose partners include
Jeffrey P. Orleans and the Trust of Selma Orleans. These parcels were
subsequently sold to an unaffiliated third party for a purchase price of
$763,000 and $1,901,000 during fiscal 1997 and 1996. These transactions
resulted in a profit to the Company before income taxes of $178,000 and
$301,000 for these periods, respectively. See Note 8 to the consolidated
financial statements for a discussion of other related party transactions.
Note 5. Real Estate Held for Development and Sale
Residential properties consist of the following:
June 30,
--------
1998 1997
------------------------
(In thousands)
--------------
Condominiums and townhomes $26,539 $19,570
Single-family homes 20,670 15,785
- ------------------------------------------------------------------
$47,209 $35,355
==================================================================
Residential properties completed or under construction consist of the
following:
June 30,
-------
1998 1997
- ------------------------------------------------------------------
(In thousands)
- ------------------------------------------------------------------
Under contract for sale $32,102 $21,300
Unsold 15,107 14,055
- ------------------------------------------------------------------
$47,209 $35,355
==================================================================
29
<PAGE>
Note 6. Mortgage Subsidiaries
The Company has a wholly-owned financing subsidiary which had been involved,
through unaffiliated companies, in issuing mortgage-collateralized bonds.
Condensed financial information for the finance subsidiary is as follows:
June 30,
-----------------------
1998 1997
-----------------------
(In thousands)
-----------------------
Total assets, principally
mortgage notes receivable $ 290 $324
Total liabilities, principally
bonds payable 230 266
- ------------------------------------------------------------------
Advances from parent company $ 60 $ 58
==================================================================
Net income for the year ended $ 2 $ 6
==================================================================
Note 7. Property and Equipment
June 30,
-----------------------
1998 1997
-----------------------
(In thousands)
-----------------------
Property and equipment consists of the
following:
Equipment and fixtures $ 2,581 982
Less accumulated depreciation (689) (475)
- -----------------------------------------------------------------
$ 1,892 $ 507
==================================================================
During fiscal 1998, a subsidiary of the Company used approximately $1,555,000
of the proceeds from a 1997 Chester County Industrial Development Authority
Wastewater Treatment Revenue Bond Offering to construct and operate a waste
water spray irrigation facility. See Note 8 for additional information on the
revenue bonds.
Depreciation expense, included in Other Costs and Expenses on the Company's
Consolidated Statements of Operations and Retained Earnings, was $214,000,
$128,000 and $128,000 during fiscal 1998, 1997 and 1996, respectively.
Note 8. Mortgage and Other Note Obligations
The maximum balance outstanding under construction and inventory loan
agreements at any month end during fiscal 1998, 1997 and 1996 was $48,461,000,
$38,178,000 and $33,473,000, respectively. The average month end balance
during fiscal 1998, 1997 and 1996 was approximately $39,916,000, $30,608,000
and $29,327,000, respectively, bearing interest at an approximate average
annual rate of 8.95%, 9.25% and 9.5%, respectively. Mortgage obligations
secured by land held for development and sale and improvements aggregating
$21,203,000 and $17,925,000 at June 30, 1998 and 1997, respectively, are due
in varying installments through fiscal 2003 with annual interest at .50% to
1.0% above the prime rate (8.5% at June 30, 1998).
30
<PAGE>
Maturities of land and improvement mortgage obligations, other than
residential property construction loans, during the next five fiscal years
are: 1999 - $7,304,000; 2000 - $11,856,000; 2001 - $1,542,000; 2002 - $253,000
and 2003 - $248,000. Obligations under residential property and construction
loans amounted to $43,933,000 and $35,712,000 at June 30, 1998 and 1997,
respectively, and are repaid at a predetermined percentage (approximately 85%
on average) of the selling price of a unit when a sale is completed. The
repayment percentage varies significantly from community to community and over
time within the same community.
Included in the Notes Payable - Related Parties balance of $12,052,000 at June
30, 1998 is a $3,000,000 Convertible Subordinated 7% Note dated August 8, 1996
issued to Jeffrey P. Orleans which matures January 1, 2002. This note is
convertible into Orleans Homebuilders, Inc. common stock at $1.50 per share.
Interest is payable quarterly and principal is due in annual installments of
$1,000,000 beginning January 1, 2000.
During fiscal 1997, the Company issued to Mr. Orleans for cash consideration a
$2,000,000 Variable Rate Note due September 30, 2000, with annual interest at
prime plus 2% payable quarterly. During fiscal 1998, Mr. Orleans advanced the
Company $2,496,000 to fund various land acquisitions, in exchange for a
$1,746,000 Demand Note and a $750,000 Revolving Working Capital Note. Interest
on the $1,746,000 Demand Note is at prime plus 2% and is payable quarterly.
The $750,000 Revolving Working Capital Note is due on November 30, 1998 but
may be automatically renewed in one year increments. Interest accrues on the
Revolving Working Capital Note at the prime rate and is payable monthly.
In December 1997, the Company purchased land from Mr. Orleans in exchange for
a $500,000 Purchase Money Mortgage ("PMM"). Subsequently, during fiscal 1998,
the Company repaid $200,000 of the PMM and began development of the land. The
remaining balance of $300,000 will be repaid from the proceeds of units sold
at this development. The PMM bears interest at 7% annually and is due no later
than 60 months from the date of issuance.
Prior to October 22, 1993, the date of acquisition by the Company of Orleans
Construction Corporation, a real estate company which was wholly owned by
Jeffrey P. Orleans, Chairman and Chief Executive Officer of the Company, OCC
had advanced funds to, borrowed funds from, and paid expenses and debt
obligations on behalf of OB&D. Mr. Orleans owns or controls approximately
63.7% and 69.1% of the Company's outstanding and potentially outstanding stock
(assuming conversion of certain convertible obligations described above),
respectively, at June 30, 1998. At June 30, 1998 and 1997, amounts owed by the
Company to the partnership aggregated $2,256,000 and $2,701,000, respectively.
These advances are payable on demand and bear interest at 7% annually.
Interest incurred on these advances amounted to $176,000, $201,000 and
$236,000 for the years ended June 30, 1998, 1997 and 1996, respectively.
Also included in the aggregate Notes Payable - Related Parties balance are
Series B Notes Payable held by Mr. Orleans of approximately $650,000 with
annual interest at prime plus 2% payable quarterly. Principal repayment of
these obligations is from the proceeds of units sold at certain residential
properties. Series B Notes are expected to be repaid in full during fiscal
2000. During fiscal 1996, Mr. Orleans agreed to defer up to $1,350,000 of
interest and principal payments due him pursuant to the repayment terms of
Series A and Series B Notes. As of June 30, 1998, the Company has deferred
approximately $1,350,000 of these payments which are also included in Notes
Payable - Related Parties. Interest is payable quarterly on this note. During
fiscal 1998, the original maturity of April 1, 1998 was extended two years.
In June, 1997, the Chester County Industrial Development Authority issued
bonds in the amount of $1,855,000 and loaned the proceeds thereof to a
subsidiary of the Company. The bonds mature November 1, 2006 and bear interest
at 7% annually. The Bonds will be repaid at a predetermined amount from
31
<PAGE>
settlement proceeds for each home sold with minimum annual repayments of
approximately $200,000 commencing on November 1, 1998. The proceeds from this
obligation were used to construct and operate a waste water spray irrigation
facility which is servicing the Company's Quaker Farms community in Chester
County, Pennsylvania. Included in Other Assets on the Company's Consolidated
Balance Sheet at June 30, 1998 is $463,000 of restricted cash to be used for
completion of the facility and repayment of the bonds. The total principal and
accrued interest of $1,877,000 is included in Other Notes Payable at June 30,
1998.
In addition, the Company has various working capital and property and
equipment note obligations which require various monthly repayment terms with
maturity dates from fiscal 1999 through 2002.
32
<PAGE>
The following table summarizes the components of Other Notes Payable,
including related party amounts.
<TABLE>
<CAPTION>
Maturity Interest Outstanding
Note Date Rate Balance
as of June 30
1998 1997
(In thousands)
<S> <C> <C> <C> <C>
Convertible Subordinated 1/2002 7% $ 3,000 $3,000
7% Note
Variable Rate Note(1) 12/2000 Prime + 2% 2,000 2,000
Demand Note(1) On demand Prime +2% 1,746 -
Deferred Series A and B Notes 4/2000 Prime +2% 1,350 1,350
Series A Notes 4/1998 Prime +2% - 420
Series B Notes 9/2000 Prime +2% 650 1,250
Revolving Working Capital Note 11/1998 Prime 750 -
Purchase Money Mortgage 12/2002 7% 300 -
Unsecured advance On demand 7% 2,256 2,701
------ ------
Subtotal - related party notes payable(2) 12,052 10,721
------ ------
Property & Equipment 1999-2002 9 1/2%-11 1/2% 811 776
Bonds Payable (secured
by mortgage receivables) 1999-2017 10%-12% 230 266
Quaker Sewer Bonds 11/2006 7% 1,877 1,855
------ -----
Subtotal - other notes payable 2,918 2,897
------ -----
$ 14,970 $ 13,618
======== =========
Maturities of these obligations during the next five fiscal years are (in
thousands):
1999(3) $ 7,727
2000 3,250
2001 1,339
2002 1,264
2003 274
Thereafter 1,116
---------
$ 14,970
=========
</TABLE>
- -------
(1) As more fully described in Note 13 subsequent to year end the Variable
Rate Note and a portion of the Demand Note were exchanged for Company
preferred stock.
(2) The holder of the related party notes payable is Jeffrey P. Orleans or
Orleans Builders & Developers a partnership in which Jeffrey Orleans owns
a majority interest.
(3) Includes all demand notes and unsecured advances payable on demand.
Note 9. Subordinated Debentures
On September 8, 1980, the Company sold 25,000 Units, each consisting of a
$1,000 debenture bearing interest at 14 l/2% per annum and 5 shares of Common
Stock.
33
<PAGE>
The debentures, which are unsecured obligations and are subordinated to senior
indebtedness, as defined, require semi-annual interest payments each September
and March with the principal balance due on September 1, 2000. Optional
prepayments may be made at 100% of the principal amount thereof. The
debentures contain certain default provisions and impose restrictions on the
amount of dividends or distributions to shareholders. The debentures are
presented net of unamortized debt discount, which is being amortized as
additional interest over the life of the debentures. As of June 30, 1998 total
principal amount of $575,000 of original subordinated debentures remain
outstanding.
Note 10. Income Taxes
The provision (benefit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
For Year Ended June 30,
-----------------------------
1998 1997 1996
-----------------------------
(In Thousands)
-----------------------------
<S> <C> <C> <C>
Continuing operations
Current $ 896 $ 271 $ 145
Deferred 126 109 (527)
- ------------------------------------------------------------------------------------------------------
$ 1,022 $ 380 $ (382)
- ------------------------------------------------------------------------------------------------------
Extraordinary Item
Current $ - $ 162 $ 117
Deferred - - -
- ------------------------------------------------------------------------------------------------------
$ - $ 162 $ 117
- ------------------------------------------------------------------------------------------------------
The differences between taxes computed at federal income tax rates and amounts
provided for continuing operations are as follows:
For Year Ended June 30,
-----------------------------
1998 1997 1996
-----------------------------
(In Thousands)
-----------------------------
Amount computed at statutory rate $ 914 $ 597 $ 290
State income taxes, net of federal
tax benefit 162 59 21
Unrealized (realized) benefits from
net operating loss carry forwards
and other tax credits net of
changes in related valuation reserves (54) (276) (693)
- ------------------------------------------------------------------------------------------------------
$1,022 $ 380 $ (382)
======================================================================================================
</TABLE>
Deferred income taxes reflect the impact of "temporary differences" between
the amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws in accordance with the provisions of SFAS No.
109 ("Accounting for Income Taxes"). The principal components of the Company's
deferred tax liability of $2,961,000 at June 30, 1998 are temporary
differences arising from interest and real estate taxes incurred prior to
commencing active construction being capitalized for financial accounting
purposes while being expensed for tax purposes. In addition, temporary
differences arise from net realizable value adjustments recognized for
financial accounting purposes but not for tax purposes. These temporary
differences reverse ratably as the communities sellout. The principal items
making up the deferred income tax provisions from continuing operations are as
follows:
34
<PAGE>
For Year Ended June 30,
---------------------------
1998 1997 1996
---------------------------
(In thousands)
---------------------------
Interest and real estate taxes $246 $172 $238
Difference in tax accounting for
land and property sales (net) (8) 13 (29)
Unrealized (realized) tax net
operating loss carryforwards
and other tax credits, net of
changes in related valuation
reserves (122) 223 (962)
Reserves for book not tax 12 (173) 142
Gain (loss) from joint ventures 15 (109) 2
Deferred compensation (35) (7) 34
Depreciation and other 18 (10) 48
- -------------------------------------------------------------------------------
$126 $109 $(527)
===============================================================================
Temporary differences represent the cumulative taxable or deductible amounts
recorded in the financial statements in different years than recognized in the
tax returns. SFAS No. 109 requires the Company to record a valuation allowance
when it is "more likely than not that some portion or all of the deferred tax
assets will not be realized." It further states that "forming a conclusion
that a valuation allowance is not needed is difficult when there is negative
evidence such as cumulative losses in recent years." The ultimate realization
of certain tax assets depends on the Company's ability to generate sufficient
taxable income in the future, including the effects of future anticipated
arising/reversing temporary differences and the Company had, in fact, realized
substantial losses in years prior to 1995. In 1995 and prior years, while the
Company had undergone substantial capital and operational restructurings in
recent years and management anticipated that total deferred tax assets would
be fully realized by future operating results and future tax planning
strategies, the losses in recent years prior to 1995, along with continued
volatility in the local real estate markets in which the Company operates,
made it appropriate to record a valuation allowance equal to 100% of the total
deferred income tax assets which were dependent upon future income for
realization in certain tax jurisdictions.
As of June 30, 1996, the Company reduced its valuation allowance from 100% to
50% on certain tax assets which were dependent on future taxable income for
realization. As a consequence, the Company recognized a net tax benefit rather
than net tax expense. The deferred tax assets for which the Company previously
provided (prior to June 30, 1996) a 100% valuation allowance consisted of
$199,000 of state net operating loss carryforwards and federal alternative
minimum tax credits aggregating $856,000 at June 30, 1996. These credits do
not have an expiration date. The loss carryforwards have expiration dates
through 2005. In order to reduce or eliminate its valuation allowance, the
Company needed to demonstrate that it was more likely than not that the
Company would generate future taxable income in sufficient amounts to utilize
its deferred tax assets. The positive evidence which the Company considered in
reducing its valuation allowance included the following:
- At June 30, 1996, the Company had concluded two consecutive
fiscal years (1996 and 1995) with income from operations.
- At June 30, 1996, the Company had a backlog of 219 homes
with a sales value of $40,206,000. This amount
represents approximately 47% of fiscal 1996 revenues
from residential properties.
35
<PAGE>
- The Company consummated a recapitalization plan in fiscal
1996 to acquire land, obtain more favorable pricing from the
Company's contractors by reducing its outstanding accounts
payable balances and retiring outstanding debt at a
discount.
An example of the negative evidence that the Company considered as of this
date are as follows: The Company had a long history of significant losses from
operations. The fiscal 1995 income from continuing operations of $1,201,000
represented the first profit from operations in more than a decade.
After evaluating this evidence, the Company concluded that it would more
likely than not realize all or a substantial portion (especially given the
expiration dates of the loss carryforwards and tax credits which have no
expiration date) of its deferred tax asset. However, given the above negative
factors, the Company did not believe the evidence supported a complete removal
of valuation allowance, given the passage of just one year's time since June
30, 1995. The Company concluded that the most prudent and conservative
approach was to reduce the valuation allowance by one-half at June 30, 1996.
Fiscal 1997 income before income taxes of $2,057,000 represented a significant
improvement over fiscal 1996 income before income taxes of $853,000.
Therefore, given the three consecutive years of profits and significant
utilization of the existing deferred tax asset, the Company believed it to be
appropriate to further adjust the valuation allowance to zero on its remaining
tax assets as of June 30, 1997.
The components of net deferred taxes payable consisted of the following
(amounts in thousands):
36
<PAGE>
1998 1997
---- ----
Capitalized interest and real estate taxes $ 2,825 $ 3,025
State income taxes 1,136 754
Other 75 318
------- -------
Gross deferred tax liabilities $ 4,036 $ 4,097
------- -------
Reserves for books (146) (260)
Partnership income (167) (126)
Related party interest (98) (127)
Executive bonus -- (80)
Employment contracts (353) (273)
Vacation accrual (73) (76)
Inventory Section 263A adjustment (160) (152)
Fixed assets (78) --
Net operating losses & tax credits -- (385)
Other -- (31)
------- -------
Gross deferred tax assets (1,075) ( 1,510)
------- -------
Net deferred tax liabilities $ 2,961 $ 2,587
======= =======
As of June 30, 1998, the Company has no remaining net operating loss or
alternative minimum tax credit carryforwards.
Note 11. Stock Option Plan
In December 1992, the Board of Directors adopted (i) the 1992 Stock Incentive
Option Plan relating to options for up to 560,000 shares (increased in
December, 1996 to 910,000 shares) of Common Stock of the Company and (ii) the
Non-Employee Directors Stock Option Plan relating to a maximum of 100,000
shares. During fiscal 1998, 170,000 options were granted at an exercise price
of $1.19 per share, subject to shareholder approval increasing the number of
options authorized for grant from 910,000 to 1,210,000. These options vest 25%
per year beginning on the date of grant. During fiscal 1997, 200,000 options
were granted at an exercise price of $1.50 per share. During fiscal 1996,
80,000 options were granted at an exercise price of $1.25 to $2.00 per share
and 50,000 options were granted at an exercise price of $1.25 or the fair
market value on the date of vesting, whichever is greater.
In February, 1995, the Board of Directors adopted the 1995 Stock Option Plan
for Non-Employee Directors (the "1995 Directors Plan"), which provides for
options of up to 100,000 shares. During fiscal 1998, 50,000 options were
granted at an exercise price of $1.19 per share, subject to shareholder
approval of an amendment to the 1995 Directors Plan increasing the number of
options authorized for grant to 125,000 and certain other related amendments
to the 1995 Directors Plan. The options vest 25% per year beginning on the
date of grant. On February 28, 1995, 75,000 options were granted under this
plan to three non-employee Directors.
The option price per share under all plans was established at the fair market
value at the dates of each grant which was $.69 to $2.81 per share. Total
outstanding options under all three plans aggregated 967,500 shares with
expiration dates between fiscal 2003 and 2007. The outstanding options do not
include options granted which are subject to shareholder approval.
37
<PAGE>
Effective in fiscal 1997, the Company was required to adopt the provisions of
SFAS No. 123 "Accounting for Stock Based Compensation". As permitted, the
Company has elected to continue to utilize the intrinsic value method and not
to charge the fair value of such options as earned directly to the financial
statements but to disclose the effects of such a charge. Had compensation
costs for the option plans been determined based on the fair value at the
grant date for awards and recognized over the related vesting period in 1998,
1997 and 1996, consistent with the provisions of SFAS No. 123, the Company's
net income and earnings per share for the three years ended June 30, 1998
would have been reduced to the pro forma amounts indicated below:
For Year Ended June 30
----------------------
1998 1997 1996
--------------------------------------------
(In thousands, except for EPS data)
Net Income - as reported $ 1,668 $ 2,209 $ 1,928
Net Income - pro forma 1,641 2,186 1,907
Diluted EPS - as reported .14 .19 .16
Diluted EPS - pro forma .14 .19 .16
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes Option - Pricing Model with the following
weighted average assumptions used for grants in 1997 and 1996, respectively:
dividend yield of 0% for all years; expected volatility of 73.9%; risk free
interest rates of 6.2% and expected lives of 10 years for all grants. The
weighted average fair value of grants per share for fiscal 1997 and 1996 was
$1.03 and $.83 per share, respectively. The fiscal 1998 option grants were not
included in the pro forma calculation as they have not yet been approved by
the shareholders.
The pro forma disclosures above may not be indicative of the
effects on reported net income and net income per share for future years, as
the pro forma disclosures include the effects of only those awards granted on
or after July 1, 1995.
38
<PAGE>
The following summarizes stock option activity for the three plans during the
three years ended June 30, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Weighted- Weighted- Weighted
Number of Average Number of Average Number of Average
Options Exercise Price Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 967,500 $1.21 792,500 $ 1.13 665,000 $ 1.03
Granted - - 200,000 1.50 130,000 1.60
Exercised - - - - - -
Canceled - - (25,000) 0.69 ( 2,500) 1.19
------- ------- -------
Outstanding,
end of year 967,500 1.21 967,500 1.21 792,500 1.13
======= ======= =======
Exercisable,
end of year 708,750 1.10 640,000 1.06 612,500 0.99
======= ======= =======
Available for grant,
end of year 92,500 92,500 -
======= ======= =======
</TABLE>
The following table summarizes information about stock options outstanding at
June 30, 1998.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (in yrs) Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$ .69 - $.81 480,000 4.5 $ .75 480,000 $ .75
$1.19 -$1.50 352,500 7.0 1.38 133,750 1.28
$2.00 -$2.81 135,000 6.0 2.45 95,000 2.64
------- -------
$ .69 -$2.81 967,500 6.0 $1.21 708,750 $1.10
======= ======= =======
</TABLE>
Note 12. Commitments and Contingencies
General
At June 30, 1998, the Company had outstanding bank letters of credit amounting
to $32,951,000 as surety for completion of improvements at various
developments of the Company.
At June 30, 1998 the Company had agreements to purchase land and approved
homesites aggregating approximately 2,200 building lots with purchase prices
totaling approximately $54,300,000 at fourteen locations. Purchase of the
properties is contingent upon obtaining all governmental approvals and
satisfaction of certain requirements by the Company and the Sellers. The
Company expects to utilize purchase money mortgages, secured financings and
existing capital resources to finance these acquisitions.
39
<PAGE>
The Company anticipates completing a majority of these acquisitions in fiscal
1999 and 2000. As of June 30, 1998 and 1997, the Company had paid deposits and
incurred other costs associated with the acquisition and development of these
parcels aggregating $2,653,000 and $1,900,000, respectively, and are included
in Other Assets.
Environmental Liability Exposure
Development and sale of real property creates a potential for environmental
liability on the part of the developer, owner or any mortgage lender for its
own acts or omissions as well as those of current or prior owners of the
subject property or adjacent parcels. If hazardous substances are discovered
on or emanating from any of the Company's properties, the owner or operator of
the property (including the prior owners) may be held strictly liable for all
costs and liabilities relating to such hazardous substances. Environmental
studies are undertaken in connection with property acquisitions by the
Company.
Pursuant to an Order dated February 6, 1996 issued by the New Jersey
Department of Environmental Protection ("NJDEP"), the Company submitted a
Closure/Post-Closure Plan ("Plan") and Classification Exception Area ("CEA")
for certain affected portions of Colts Neck Estates, a single family
residential development built by the Company in Washington Township,
Gloucester County, New Jersey. The affected areas include those portions of
Colts Neck where solid waste allegedly was deposited. NJDEP approved the Plan
and CEA on July 22, 1996. The Plan, in part, requires the Company to (i)
perform gas monitoring for methane on a quarterly basis for a period of one
year; (ii) vegetate and cover with clean fill affected areas; and (iii) deed
restrict portions of the affected open space owned by it. NJDEP's approval of
the CEA imposes restrictions on the use of ground water within the affected
area. Neither the implementation of the Plan nor CEA is expected to have a
material adverse effect on the Company's results of operations or its
financial position although NJDEP as a standard condition of its approval of
the Plan and CEA reserves the right to amend its approval to require
additional remediation measures if warranted.
Approximately 145 homeowners at Colts Neck instituted three lawsuits against
the Company, which were separately filed in state and Federal courts between
April and November, 1993. These suits were consolidated in the United States
District Court for the District of New Jersey and were subject to
court-sponsored mediation. Asserting a variety of state and federal claims,
the plaintiffs in the consolidated action alleged that the Company and other
defendants built and sold them homes which had been constructed on and
adjacent to land which had been used as a municipal waste landfill and a pig
farm. The complaints asserted claims under the federal Comprehensive
Environmental Response, Compensation and Liability Act, the Federal Solid
Waste Disposal Act, the New Jersey Sanitary Landfill Facility Closure and
Contingency Act, the New Jersey Spill Compensation and Control Act, as well as
under theories of private nuisance, public nuisance, common law fraud, latent
defects, negligent misrepresentation, consumer fraud, negligence, strict
liability, vendor liability, and breach of warranty, among others.
The Company, in turn, asserted third-party claims against the former owners
and operators of the Colts Neck property as well as claims against the
generator of the municipal waste allegedly disposed on the property.
In September, 1993 the Company brought an action in New Jersey state court
against more than 30 of its insurance companies seeking indemnification and
reimbursement of costs of defense in connection with the three Colts Neck
actions referred to above.
As a result of the court sponsored mediation, the Company and the plaintiffs in
the consolidated litigation entered into a settlement agreement. Under that
agreement, which has been approved by the Court, a $6,000,000 Judgment was
entered against the Company in favor of a class comprising most of the current
and former homeowners. The
40
<PAGE>
Company, which has paid $650,000 on August 28, 1996 to the class, has no
liability for the remainder of the Judgment. The remainder of the Judgment is
to be paid solely from the proceeds of the state court litigation against the
Company's insurance companies. Although, under the settlement agreement the
Company is obligated to prosecute and fund the litigation against its
insurance companies, the Company is entitled to obtain some reimbursement of
those expenses. Specifically, under the settlement agreement, the Company may
obtain reimbursement of its aggregate litigation expenses in excess of
$100,000 incurred in connection with its continued prosecution of the
insurance claims to the extent that settlements are reached and to the extent
that the portion of those settlement funds designated to fund the litigation
are not exhausted. The Company's right to reimbursement may, under certain
circumstances, be limited to a total of $300,000.
The Company is currently prosecuting the litigation against its insurance
companies in state court. Prosecution of those claims was pursued in federal
court between 1994 and 1996, but has since been remanded to state court on
jurisdictional grounds. The state court insurance litigation is being actively
pursued. To date, settlements totaling $577,500 have been reached with seven
defendants, half of which have been or will be paid to the plaintiff class,
and half of which has been or will be used to fund the continued litigation.
The likelihood of a favorable judgment or additional settlements in the
litigation is uncertain.
In addition, the Company has reached a $205,000 tentative settlement of its
third party claims in the above-mentioned federal litigation. One-half of the
proceeds of any such settlement will be payable to the plaintiff class under
the 1995 settlement agreement with the class.
The Company has accrued estimated costs of environmental testing as well as
all other reasonably estimable future investigatory, engineering, legal and
litigation costs and expenses. The Company believes that neither the
implementation of the settlement agreement nor the resolution of the insurance
claims through further litigation will have a material effect on its results
of operations or its financial position.
The Company is not aware of any other environmental liabilities associated
with any of its other projects.
Other Significant Litigation
During fiscal 1998, a judgment in the amount of $2,500,000 was rendered
against OHB, and in the amount of $1,250,000 against the Estate of Marvin
Orleans and Jeffrey P. Orleans, trading as Orleans Construction Company, a
partnership (collectively, "O.C.C.") by the Court of Common Pleas of Bucks
County, in an action brought against OHB, O.C.C. and an unrelated party
arising out of injuries to two workmen at an OHB project during its
construction phase. The plaintiffs have also requested "delay damages" based
upon an allegation, which OHB and O.C.C. will contest, that OHB and O.C.C.
inappropriately delayed the trial. Although the amount of delay damages, if
awarded, is uncertain, the portion thereof allocable to OHB and O.C.C. could
be as much as approximately $2,250,000 between them. OHB and O.C.C. have filed
post-trial motions challenging the judgment. One of OHB's subcontractors is
insured for up to $2,000,000 under two insurance policies, that
subcontractor's insurance company provided a defense to OHB and O.C.C. and its
limits stand in front of OHB's primary insurance policy. OHB and O.C.C. are
insured up to $1,000,000 under its primary policy in effect at that time, and
OHB and O.C.C. are further insured under an umbrella policy for $15,000,000.
The subcontractor's insurance company, OHB's primary insurance company, and
OHB's excess insurer, have acknowledged coverage up to their aggregate policy
limits. Therefore, the full amount of the judgment, including delay damages,
is expected to be satisfied from insurance proceeds.
Accordingly, the Company has recorded an accrued expense for $2,500,000 for
its portion of the judgment discussed above. The Company also has recorded a
receivable for $2,500,000, representing the amount the
41
<PAGE>
Company believes it will recover from the various insurance carriers to
satisfy its portion of the judgment. Based upon the outcome of post-trial
motions challenging the judgment and any potential future award of delay
damages, the Company will adjust its liability and insurance recovery amounts
accordingly.
Note 13. Subsequent Events.
In September 1998, the Board of Directors took final action to authorize the
issuance of shares of Series D Preferred Stock (the "Series D Stock") to
Jeffrey P. Orleans in exchange for an aggregate amount of $3 million in
Company notes held by Mr. Orleans. The 100,000 shares of Series D Stock will
be distributed from the 500,000 shares of Preferred Stock authorized. The
Series D Stock will have a liquidation value of $3,000,000, or $30 per share,
and will require annual dividends of 7% of the liquidation value. The
dividends are cumulative and are payable quarterly with the first payment due
December 1, 1998. The Series D Stock may be redeemed by the Company at any
time after December 31, 2003, in whole or in part, at a cash redemption price
equal to the liquidation value plus all accrued and unpaid dividends on such
shares to the date of redemption. The Series D Stock is convertible into
2,000,000 shares of Common Stock upon the approval by the American Stock
Exchange of a supplemental listing application covering such shares.
42
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------ Financial Disclosure.
---------------------
There are no matters required to be reported hereunder.
PART III
Item 10. Directors and Executive Officers of the Registrant.
- -------- ---------------------------------------------------
Incorporated herein by reference from the Company's definitive
proxy statement for its annual meeting of Stockholders to be held in December,
1998. Information concerning the executive officers is included under the
separate caption Item A. "Executive Officers of the Registrant" under Part I
of this Form 10-K.
Item 11. Executive Compensation.
- -------- -----------------------
Incorporated herein by reference from the Company's definitive
proxy statement for its annual meeting of Stockholders to be held in December,
1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------- --------------------------------------------------------------
Incorporated herein by reference from the Company's definitive
proxy statement for its annual meeting of Stockholders to be held in December,
1998.
Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------
Incorporated herein by reference from the Company's definitive
proxy statement for its annual meeting of Stockholders to be held in December,
1998.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- -------- -----------------------------------------------------------------
(a) Financial Statements and Financial Statement Schedules
1. Financial Statements
--------------------
The financial statements listed in the
index on the first page under Item 8
are filed as part of this Form 10-K.
2. Financial Statement Schedules
-----------------------------
None.
43
<PAGE>
3. Exhibits
--------
Exhibit Number
- --------------
3.l Certificate of Incorporation of the Company dated September 4,
1969 (incorporated by reference to Exhibit 2.l of the Company's
Registration Statement on Form S-7, filed with the Securities
and Exchange Commission (S.E.C. File No. 2-68662) (herein
referred to as "Form S-7")).
3.2 Amendment to Certificate of Incorporation of the Company filed
July 25, 1983 (incorporated by reference to Exhibit 3.2 of
Amendment No. 2 to the Company's Registration Statement on Form
S-2 filed with the Securities and Exchange Commission (S.E.C.
File No. 2-84724)).
3.3 Amendment to Certificate of Incorporation of the Company filed
May 27, 1992 (incorporated by reference to Exhibit 3.6 of
Amendment No. 2 to the Company's Registration Statement on Form
S-1 filed with the Securities and Exchange Commission (S.E.C.
File No. 33-43943) (the "Form S-1")).
3.4 Agreement and Plan of Merger dated as of October 22, 1993, by and
among the Company, FPA Merger Subsidiary, Inc. a Pennsylvania
corporation; Orleans Construction Corp. ("OCC"); and Jeffrey P.
Orleans, including the Certificate of Designation respecting the
Series C Preferred Stock incorporated by reference to Exhibit 3.5
to the Company's Form 8-K dated October 22, 1993 filed with the
Securities and Exchange Commission (the "1993 Form 8-K").
3.5 Certificate of Designation filed by the Company on September 6,
1991 with the Secretary of State of Delaware respecting the
Series A Preferred Stock and Series B Junior Preferred Stock
(incorporated by reference to Exhibit 4.4 of the Company's Form
8-K dated September 11, 1991 ("1991 Form 8-K")).
3.6 Subsequent Certificate to Certificate of Designations,
Preferences and Rights of Series A Preferred Stock and Series B
Junior Preferred Stock of FPA Corporation adopted September 14,
1992 and filed with the Secretary of State of Delaware.
(incorporated by reference to Exhibit 4.19 to Registrant's Form
10-K for the fiscal year ended June 30, 1994.)
3.7 Subsequent Certificate to Certificate of Designations,
Preferences and Rights of Series A Preferred Stock and Series B
Junior Preferred Stock of FPA Corporation filed on September 2,
1993 with the Secretary of State of Delaware.
3.8 Certificate of Designations, Preferences and Rights of Series C
Preferred Stock filed by the Company on October 21, 1993 with the
Secretary of State of Delaware respecting the Series C Preferred
Stock. (incorporated by reference to Exhibit 2.1 to the Company's
Form 8-K dated October 22, 1993).
3.9* Certificate of Elimination to Certificate of Designations,
Preferences and Rights of Series C Preferred Stock of FPA
Corporation filed on October 18, 1996 with the Secretary of State
of Delaware.
44
<PAGE>
3.10* Amendment to Certificate of Incorporation filed with the
Secretary of State of Delaware on July 13, 1998.
3.11* By-Laws, as last amended on April 20, 1998.
4.l Form of the Company's 14 l/2% Subordinated Debentures due
September l, 2000 (contained in, and beginning on page 12 of,
Exhibit 4.2).
4.2 Form of Indenture dated September l, 1980, between the Company
and The Fidelity Bank (the "Debenture Indenture"), relating to
the Company's 14 l/2% Subordinated Debentures due September l,
2000 (incorporated by reference to Exhibit 2.3 of Amendment No. 2
to the Company's Form S-7).
4.3 Form of Second Supplemental Indenture dated March 30, 1990 to the
Debenture Indenture (incorporated by reference to Exhibit 4.3 to
the 1990 Form 8-K).
4.4 Note Exchange Agreement, dated September 11, 1991, respecting the
issuance of $5,032,935.38 aggregate principal amount of 12 5/8%
Senior Notes due February 15, 1996, with the form of the
Company's 12 5/8% Senior Notes due February 15, 1996 attached as
Exhibit A thereto (incorporated by reference to Exhibit 4.5 to
the 1991 Form 8-K).
4.5 Debenture Exchange Agreement, dated September 11, 1991,
respecting the issuance of $2,356,282.50 aggregate principal
amount of 1991 14 1/2% Subordinated Debentures due September 1,
2000 with the form of the Company's 1991 14 1/2% Subordinated
Debentures due September 1, 2000 attached as Exhibit A thereto
(incorporated by reference to Exhibit 4.6 to the 1991 Form 8-K).
4.6 Form of Note Purchase Agreement dated as of October 22, 1993,
together with form of Series A Variable Rate Notes due September
15, 1998 issued by the Company attached thereto (incorporated by
reference to Exhibit 4.2 to the 1993 Form 8-K).
4.7 Form of Note Purchase Agreement dated October 22, 1993, together
with form of Series B Variable Rate Mortgage Notes due September
15, 1998 issued by the Company attached thereto (incorporated by
reference to Exhibit 4.24 to the 1993 Form 8-K).
4.8 Form of Note Purchase Agreement, dated as of August 1, 1996,
together with form of $2,000,000 Variable Rate Note due September
30, 2000 (incorporated by reference to Exhibit 4.8 to the 1996
Form 10-K).
4.9 Form of Note Purchase Agreement, dated as of August 1, 1996,
together with form of $3,000,000 Convertible Subordinated 7%
Note due January 1, 2002 (incorporated by
reference to Exhibit 4.9 to the 1997 Form 10-K).
10.1 Form of Indemnity Agreement executed by the Company with
Directors of the Company (incorporated by reference to Exhibit B
to the Company's Proxy Statement respecting its 1986 Annual
Meeting of Stockholders).
45
<PAGE>
10.2 Employment Agreement between the Company and Jeffrey P. Orleans,
dated June 26, 1987 (incorporated by reference to Exhibit 10.2 to
the Form S-1.)
10.3 Mortgage dated March 17, 1992 granted by the Company to Jeffrey
P. Orleans, respecting property in Washington Township,
Gloucester County, New Jersey (incorporated by reference to
Exhibit 10.3 to the 1992 Form 8-K).
22.* Subsidiaries of Registrant.
23.* Consents of Experts and Counsel.
25.* Power of Attorney (included on Signatures page).
27.* Financial Data Schedule (included in electronic filing format
only).
- --------------
* Exhibits included with this filing.
(b) Reports on Form 8-K
-------------------
On May 27, 1998, the Company filed a Form 8-K announcing
the Company's change of name to "Orleans Homebuilders,
Inc." from "FPA Corporation".
46
<PAGE>
SIGNATURES
and
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Jeffrey P. Orleans, Benjamin D. Goldman and Joseph A.
Santangelo and each of them, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Annual Report, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or each of them, of
their or his substitutes or substitute, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated:
s/Jeffrey P. Orleans September 25, 1998
- --------------------------
Jeffrey P. Orleans
Chairman of the Board and
Chief Executive Officer
s/Benjamin D. Goldman September 25, 1998
- --------------------------
Benjamin D. Goldman
Vice Chairman and Director
s/Sylvan M. Cohen September 25, 1998
- --------------------------
Sylvan M. Cohen
Director
s/Robert N. Goodman September 25, 1998
- --------------------------
Robert N. Goodman
Director
s/Andrew N. Heine September 25, 1998
- --------------------------
Andrew N. Heine
Director
s/David Kaplan September 25, 1998
- --------------------------
David Kaplan
Director
47
<PAGE>
s/Lewis Katz September 25, 1998
- ------------------------------------
Lewis Katz
Director
s/Michael T. Vesey September 25, 1998
- -------------------------------------
Michael T. Vesey
President and Chief Operating Officer
s/Joseph A. Santangelo September 25, 1998
- -------------------------------------
Joseph A. Santangelo
Chief Financial Officer,
Treasurer and Secretary
48
<PAGE>
Exhibit 3.9
CERTIFICATE OF ELIMINATION
TO
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES C PREFERRED STOCK
OF
FPA CORPORATION
FPA CORPORATION, a corporation organized and existing under the
General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
That, pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation, as amended, of said Corporation, and
pursuant to the provisions of Section 151(g) of Title 8 of the Delaware Code
of 1953, the Board of Directors duly adopted resolutions by unanimous written
consent dated October 11, 1996, providing for the elimination from the
Certificate of Incorporation of all matters with respect to Series C Preferred
Stock set forth in the Certificate of Designations, Preferences and Rights of
Series C Preferred Stock filed with the Office of the Delaware Secretary of
State on October 21, 1993, which resolutions have not been modified, revoked
or amended, and read as follows:
WHEREAS, on October 21, 1993, this Corporation filed a
Certificate of Designations, Preferences and Rights (the "Certificate
of Designations") of Series C Preferred Stock (the "Series C
Preferred Stock"); and
WHEREAS, on October 22, 1993, in accordance with the
provisions of the Certificate of Designations, this Corporation
issued 50,000 shares of Series C Preferred Stock, par value $1.00
(the "Issued Series C") in exchange for good and valuable
consideration delivered to this Corporation; and
WHEREAS, on August 19, 1994, in accordance with the
provisions of the Certificate of Designations, at a Meeting of
Stockholders of this Corporation, the Stockholders approved the
conversion of the Issued Series C to 6,000,000 shares of Common
Stock, par value $.10, of this Corporation, whereupon the Issued
Series C was automatically converted on September 8, 1994, following
listing of the 6,000,000 shares of Common Stock on the American Stock
Exchange; and
<PAGE>
WHEREAS, none of the authorized shares of the Series C
Preferred Stock is currently outstanding.
NOW, THEREFORE, be it
RESOLVED, That none of the authorized shares of the
Series C Preferred Stock will be issued subject to the
Certificate of Designations of Series C Preferred Stock
filed with the Delaware Secretary of State on October 21,
1993; and
FURTHER RESOLVED, That the President, any Vice
President, the Secretary and the Treasurer, or any one of
them (the "Designated Officers") be, and each of them acting
alone or in concert is hereby, authorized and empowered,
without further action or direction from the Board of
Directors of this Corporation, to execute, deliver and
appropriately file on behalf of this Corporation a
Certificate (the "Certificate") in accordance with the
provisions of Section 151(g) of the General Corporation Law
of the State of Delaware setting forth the Resolutions
adopted herein; and
FURTHER RESOLVED, That when such Certificate
becomes effective (i) it shall have the effect of
eliminating from the Certificate of Incorporation of this
Corporation all matters set forth in the Certificate of
Designations with respect to the Series C Preferred Stock,
and (ii) this Corporation shall have 500,000 shares of
Preferred Stock, par value $1.00, authorized, as to which no
designation of series has been made.
IN WITNESS WHEREOF, FPA Corporation has caused this Certificate to be
executed this 11th day of October, 1996.
FPA CORPORATION
By: /s/ Benjam D. Goldman
---------------------
Name: Benjamin D. Goldman
Title: President
-2-
<PAGE>
Exhibit 3.10
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FPA CORPORATION
FPA CORPORATION, a corporation organized and existing under and by
virtue of the Delaware General Corporation Law (the "Corporation"),
DOES HEREBY CERTIFY THAT:
FIRST: The Board of Directors of the Corporation has adopted the
following resolutions proposing and declaring advisable the following
amendment to the Certificate of Incorporation of the Corporation:
RESOLVED, that Article First of the Corporation's
Certificate of Incorporation, be, subject to the requisite
stockholder approval, amended to read in its entirety as follows (the
"Amendment"):
"FIRST: The name of the Corporation is Orleans Homebuilders,
Inc."
FURTHER RESOLVED, that the Board of Directors of the
Corporation hereby finds and declares that the adoption of the
Amendment is advisable and in the best interests of the Corporation.
SECOND: Thereafter, in lieu of a meeting and vote of stockholders,
the holder of record of an aggregate of 7,085,675 shares of the 11,356,018
outstanding shares of common stock of the Corporation, having not less than
the minimum number of votes necessary to authorize the Amendment, gave a
written consent to the Amendment in accordance with the provisions of Section
228 of the Delaware General Corporation Law.
THIRD: The Amendment has been duly adopted in accordance with the
provisions of Sections 228 and 242 of the Delaware General Corporation Law.
FOURTH: The Amendment shall not be effective until 11:59 p.m. on July
13, 1998.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by a duly authorized officer this 13th day of July,
1998.
FPA CORPORATION
By: /s/ Joseph A. Santangelo
-------------------------
Name: Joseph A. Santangelo
Title: Treasurer and Secretary
<PAGE>
Exhibit 3.11
BY-LAWS
OF
ORLEANS HOMEBUILDERS, INC.
ARTICLE I. Offices.
1.1 Registered Office. The registered office of the Corporation in
the State of Delaware shall be located in the City of Wilmington, County of
New Castle, and the Agent in charge thereof shall be The Corporation Trust
Company. The Corporation may also have offices at such other places within or
without of the State of Delaware as the Board of Directors may from time to
time appoint or as the business of the Corporation may require.
1.2 Principal Offices. The registered office of the Corporation in
the State of Delaware need not be identical with the principal office, and may
be changed from time to time as the Board of Directors may determine.
ARTICLE II. Stockholders.
2.1 Annual Meeting. The annual meeting of the stockholders shall be
held on the third Friday of October in each year, at such hour and place as
may be designated by the Chairman of the Board. If the day fixed for the
annual meeting shall be a legal holiday, such meeting shall be held on the
next succeeding business day. If the annual meeting has not been held during a
calendar year, it may be called by the following procedure set forth in
Section 2.2 hereof.
At the annual meeting, the stockholders shall elect Directors for the
ensuing year and may transact such other business as may properly come before
the meeting.
2.2 Special Meetings. Special meetings of the stockholders may be
called at any time by the Chairman of the Board or the President, or by
resolution of the Board of Directors. Upon written request of any person or
persons who have duly called a special meeting, the Secretary shall fix the
date of the meeting to be held not more than ninety (90) days after receipt of
the request and give due notice thereof to the stockholders entitled to vote
thereat. If the Secretary shall neglect or refuse to fix such date or give
such notice, the person or persons calling the meeting may do so.
2.3 Place of Meeting. The Board of Directors may designate any place,
either within or without the State of Delaware, as the place of meeting for
any annual or special meeting of the stockholders. If no designation is made
by the Board of Directors, the place of meeting shall be at the principal
office of the Corporation in the State of Delaware.
<PAGE>
2.4 Notice of Meeting. Written notice shall, unless otherwise
provided by statute, be given to stockholders entitled to vote at the meeting
who are stockholders as of the record date as provided in Section 2.6 hereof,
not less than ten (10) nor more than fifty (50) days before the date of the
meeting to the address of the stockholder appearing on the books of the
Corporation, or supplied by the stockholder to the Corporation for the purpose
of notice. Such notice shall state the place, date and hour of the meeting.
When required by these By-Laws or by statute such notice shall also state the
general nature of the business to be transacted.
2.5 Sufficiency of Notice. Any notice required hereunder shall be
deemed to have been given to the person entitled thereto (a) if sent by mail,
when deposited in the United States mail, post prepaid, or (b) when lodged
with a telegraph office for transmission with charges prepaid, or (c) when
delivered personally.
Whenever notice is required to be given, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether signed before
or after the time stated, shall be deemed equivalent to the giving of such
notice. Attendance of a person at any meeting, either in person or by proxy,
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express and stated purpose of objecting to the
transaction of any business because the meeting was not lawfully called or
convened.
2.6 Record Date. The Board of Directors may fix in advance a date as
the record date for the determination of stockholders entitled to notice of,
or to vote at, any meeting of stockholders or stockholders entitled to receive
payment of any dividend or distribution, or in order to make a determination
of stockholders for any other proper purpose, such date in any case to be not
more than sixty (60) days and, in case of a meeting of stockholders, not less
than ten (10) days, prior to the date for which such determination of
stockholders is necessary or proper. If no record date is fixed for the
determination of stockholders entitled to receive notice of, or to vote at, a
meeting of stockholders, or stockholders entitled to receive payment of a
dividend or such other entitlement, the date next preceding the date on which
notice of the meeting is mailed, or the date next preceding the date on which
the resolution of the Board of Directors declaring such dividend or other
entitlement is adopted, as the case may be, shall be the record date for such
determination of stockholders.
2.7 Voting List. The officer or agent having charge of the transfer
book for shares of the Corporation shall make, at least ten (10) days before
each meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, with the address and the
number of shares held by each. The list shall be kept on file at the principal
office of the Corporation and shall be subject to inspection by any
stockholder at any time during usual business hours, and shall also be
produced and kept open at the time and place of the meeting, and shall be
subject to the inspection of any stockholder during the whole time of the
meeting.
2.8 Quorum. Except as otherwise required by law, the presence of
stockholders, in person or by proxy, entitled to cast at least a majority of
the votes which all Common stockholders (plus such other stockholders who may
from time to time be entitled to vote with the holders of Common Shares) are
-2-
<PAGE>
entitled to cast shall constitute a quorum. With respect to the consideration
of any particular matter as to which the stockholders of any class or series
shall be entitled to cast a vote separate from the vote of the Common
stockholders, the presence of stockholders, in person or by proxy, entitled to
cast at least a majority of the votes which all such class or series of
stockholders are entitled to cast on such particular matter shall constitute a
quorum of such class or series of stockholders for the purpose of considering
such matters. The stockholders present at a duly organized meeting may
continue to do business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum.
If a meeting cannot be organized because a quorum has not attended,
those present may adjourn the meeting to such time and place as they may
determine. A meeting at which Directors are to be elected, however, shall be
adjourned only from day to day, or for such longer periods not exceeding
fifteen (15) days each, until such Directors have been elected. Except as
otherwise provided by law, whenever a meeting called for any purpose has been
adjourned for lack of a quorum, the presence of stockholders, in person or by
proxy, entitled to cast at least one-third of the votes which each such class
or series of stockholders is entitled to vote at the reconvened meeting,
although less than a quorum as fixed in these By-Laws or in the Certificate of
Incorporation or by statute, shall nevertheless constitute a quorum.
2.9 Acts of Stockholders. Unless a greater or different vote shall be
required as to a particular matter by the Certificate of Incorporation or by
these By-Laws or by applicable statute, an act authorized by the vote of a
majority of those Common Shares (plus such other shares which may from time to
time be entitled to vote with the Common Shares) present in person or by proxy
at a duly organized meeting shall be the act of the stockholders.
2.10 Adjournment. Adjournment or adjournments at any annual or
special meeting may be taken as may be directed by a majority of votes cast by
the stockholders present in person or by proxy entitled to cast the votes
which the Common stockholders (plus such other stockholders who shall at the
time be entitled to vote with the holders of the Common Shares on the matters
to be considered at the meeting), may cast, but any meeting at which Directors
are to be elected shall be adjourned only from day to day, or for such longer
periods not exceeding fifteen (15) days each, until such Directors have been
elected. When a meeting is adjourned, it shall not be necessary to give any
notice of the adjourned meeting other than an announcement at the meeting at
which such adjournment is taken; provided, however, that if the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.11 Proxies. At all meetings of stockholders, a stockholder entitled
to vote on a particular matter may vote in person or may authorize another
person or persons to act for him by proxy. Every proxy shall be executed in
writing by the stockholder, or by his duly authorized attorney in fact. Such
proxies shall be filed with the Secretary of the Corporation before or at the
time of the meeting. A proxy, unless coupled with an interest, shall be
revocable at will, notwithstanding any other agreement or any provision in the
proxy to the contrary, but the revocation of the proxy shall not be effective
until notice thereof has been given to the Secretary of the Corporation. The
Secretary may treat any proxy delivered to him as valid, unless before the
vote is counted or the authority is exercised, written notice of any
invalidity, together with such supporting information as shall enable a
judgment to be rendered, is given to the Secretary.
-3-
<PAGE>
2.12 Voting Rights. Unless otherwise provided in the Certificate of
Incorporation or in a duly filed statement establishing the rights of classes
or series, only the holders of Common Stock shall be entitled to vote at a
meeting of the stockholders and every stockholder having the right to vote
shall be entitled to one vote for every share of Common Stock standing in his
name on the books of the Corporation.
2.13 Nomination of Directors. Nominations for election to the office
of Director at an annual or special meeting of stockholders shall be made by
the Board of Directors, or by the Executive Committee, and may be made by
petition in writing delivered to the Secretary of the Corporation not fewer
than thirty-five (35) days prior to such stockholders' meeting, signed by the
holders of at least one percent (1%) of the stockholders' shares entitled to
be voted in the election of Directors. Unless nominations shall have been made
as aforesaid, they shall not be considered at such stockholders' meeting
unless the number of persons nominated as aforesaid, or nominated and still
able or willing to be nominees, shall be fewer than the number of persons to
be elected to the office of Director at such meeting, or unless persons duly
nominated shall have failed of election at such meeting and the persons
elected as Directors shall be fewer than the number of persons to be elected
to the office of Director at such meeting, in which events nominations may be
made at the stockholders' meeting by any person entitled to vote in the
election of Directors.
2.14 Election by Ballot. The election of Directors shall be by ballot
upon demand, before the voting begins, by a stockholder entitled to vote at
such election. Unless so demanded voting need not be by ballot.
2.15 Judges of Election. In advance of any meeting of stockholders,
the Board of Directors may appoint Judges of Election, who need not be
stockholders, to act at such meeting or any adjournment thereof. The number of
Judges shall be one or three. The Judges of Election shall apprise themselves
of the number of shares outstanding and the voting power of each; tabulate the
shares represented at the meeting; the existence of a quorum; determine the
authenticity, validity and effect of proxies; hear and determine all
challenges and questions arising in connection with the right to vote;
receive, count and tabulate all votes or ballots, and determine the result;
and do such other acts as may be necessary and proper to conduct the election
or vote with fairness to all stockholders. On request of the Chairman of the
Meeting, or of any stockholder or his proxy, the Judges shall make a report in
writing of any challenge or question or matter determined by them, and execute
a certificate of any fact found by them. If there be three Judges of Election,
the decision, act or certificate of a majority shall be effective in all
respects as the decision and/or certificate of all. Any report or certificate
made by the Judges of Election shall be prima facie evidence of the facts
stated therein.
ARTICLE III. Board of Directors.
3.1 Number, Tenure and Qualifications. The business and affairs of
the Corporation shall be managed by its Board of Directors (sometimes referred
to herein as the "Board"). The number of Directors which shall constitute the
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<PAGE>
whole Board shall be such as from time to time is fixed by the Board of
Directors, but in no case shall there be more than fifteen (15) or less than
five (5) Directors. The Directors shall be natural persons of full age and
need not be stockholders in the Corporation.
3.2 Powers and Authorization. In addition to the powers and authority
expressly conferred by these By-Laws, the Board of Directors may exercise all
of the powers of the Corporation and do all lawful acts not by statute or by
the Certificate of Incorporation or by these By-Laws directed or required to
be exercised or done only by the stockholders. The Board shall have the power
to delegate any of the powers exercised or exercisable by the Board to any
standing or special committee, or to any officer or agent, or to appoint any
person to be the agent of the Corporation, with such powers, including the
power to subdelegate, and upon such terms as the Board shall deem appropriate.
3.3 Meetings. Meetings of the Board of Directors shall be held at
such times and places either within or without the State of Delaware, as may
be fixed by Resolution of the Board, or by the President, or upon written
demand of any three Directors.
3.4 Notice. Notice of a meeting of Directors or of any Committee of
the Board of Directors shall be delivered at least one day prior to such
meeting by oral, telegraphic or written notice. If mailed, such notice shall
be deemed to be delivered on the day following the day deposited in the United
States mail, addressed to the Director at his business address, with postage
thereon prepaid. If notice be given by telegram, such notice shall be deemed
to be delivered on the day the telegram is delivered prepaid to the telegraph
company, addressed to the Director at his business office. Notice of a meeting
need only state the place, day and hour of the said meeting.
A Director may waive notice of any meeting in a writing signed either
before or after the time stated. The attendance of a Director at a meeting
shall constitute a waiver of notice of such meeting, except where a Director
attends a meeting for the express purpose of objecting to the transaction of
any business because the meeting was not lawfully called or convened.
3.5 Quorum. A majority of the Directors then in office shall
constitute a quorum for the transaction of business at any meeting of the
Board of Directors, but if less than such quorum is present at a meeting, a
majority of the Directors present may adjourn the meeting from time to time
without further notice.
Directors shall be deemed present at a meeting of the Board of
Directors if by means of conference telephone or similar communications
equipment all persons participating in the meeting can hear each other.
The act of the majority of Directors voting at a meeting at which a
quorum is present shall be the act of the Board of Directors.
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<PAGE>
3.6 Unanimous Consent. Any action which may be taken at a meeting of
the Directors, or by action of the members of the Executive Committee or by
the members of any other committee appointed by the Board, may be taken
without a meeting, if a consent or consents in writing setting forth the
action so taken shall be signed by all of the Directors or the members of the
committee, as the case may be, and filed with the Secretary of the
Corporation.
3.7 Compensation. Directors as such need not receive any compensation
for their services. By Resolution of the Board, a stated salary may be fixed
for the Directors, or a fixed sum for, and expenses of, attendance may be
allowed for attendance at each annual, regular or special meeting of the
Board. Nothing herein contained shall be construed to preclude any Director
from serving the Corporation as a member of a committee or an officer or in
any other capacity and receiving compensation therefor.
3.8 Committee of the Board. The Board may, by resolution adopted by a
majority of the whole Board, delegate two or more of its number to constitute
(a) an Executive Committee which, unless otherwise provided in such
resolution, shall have and exercise the authority of the Board of Directors in
the management of the business and affairs of the Corporation, and (b) any
other committee or committees which shall have such powers of the Board as
authorized by such resolution.
Members of any such committee or committees shall hold office for
such period as may be prescribed by the vote of a majority of the whole Board
of Directors, subject, however, to removal at any time by the vote of a
majority of the whole Board of Directors. Vacancies in membership of any such
committee or committees shall be filled by a majority vote of the whole Board
of Directors. Each such committee may adopt its own rules of procedure and may
meet at stated times or on such notice as such committee may determine. Except
as otherwise permitted by Section 3.6 of these By-Laws, each such committee
shall keep regular minutes of its proceedings and report the same to the Board
when required.
The presence in person or as hereafter provided of one-half (1/2) of
the members of the Executive Committee or any other committee shall constitute
a quorum for the transaction of business at any meeting of such committee, and
the act of a majority of those members of such committee voting at a meeting
at which a quorum is present shall be the act of the committee. Members of the
Executive Committee or any other committee shall be deemed as being present at
a meeting of such committee if by means of conference telephone or similar
communications equipment all persons participating in the meeting can hear
each other.
3.9 Removal of Directors. Any individual Director may be removed from
office without assigning any cause by the vote of stockholders entitled to
cast at least a majority of votes which all stockholders would be entitled to
cast at any annual election of Directors.
The entire Board of Directors may be removed from office without
assigning any cause by the vote of stockholders entitled to cast at least a
majority of the votes which all stockholders would be entitled to cast at any
annual election of Directors.
The Board of Directors may declare vacant the office of a Director if
he be declared of unsound mind by an order of court, or convicted of a felony
or other crime, or for any other proper cause.
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<PAGE>
3.10 Vacancies. Vacancies in the Board of Directors, including
vacancies resulting from an increase in the number of Directors, shall be
filled by a majority vote of the remaining members of the Board though less
than a quorum. A Director elected to fill a vacancy shall be a Director until
a successor is elected by the stockholders, who shall make such election at
the next annual meeting of the stockholders or any special meeting duly called
for that purpose and held prior thereto.
ARTICLE IV. Officers.
4.1 Executive Officers. The Executive Officers of the Corporation
shall be chosen by the Directors and shall be a Chairman of the Board, Vice
Chairman of the Board, President, Secretary and Treasurer. The Board of
Directors may also choose an Executive Vice President, one or more Vice
Presidents and such officers and agents as shall be necessary, who shall hold
their offices for such terms and shall have such authority and shall perform
such duties as from time to time shall be prescribed by the Board.
4.2 Qualifications. Any number of offices may be held by the same
person. The President and Secretary shall be natural persons of full age. The
Treasurer, if a natural person, shall be of full age. It shall not be
necessary for the officers to be Directors.
4.3 Salaries. The salaries of the President, the Chairman of the
Board, the Vice Chairman of the Board, the Executive Vice President, any Vice
President, the Secretary and the Treasurer of the Corporation shall be fixed
by the Board of Directors.
4.4 Term of Office; Removal. The officers of the Corporation shall
hold office for one year and until their successors are elected and qualified.
Notwithstanding the foregoing, every officer and agent may be removed
at any time by the Board of Directors, without assigning any cause therefor.
4.5 Duties of the Chairman of the Board. The Chairman of the Board
shall be the Chief Executive Officer of the Corporation. He shall have such
powers and duties as may be assigned to him from time to time by resolution of
the Board of Directors. The Board of Directors may, by resolution, grant the
Chairman of the Board such powers and privileges as may be expressly assigned
by other provisions of these By-Laws to the President, in which event the
Chairman of the Board shall be entitled, if he so chooses, to exercise such
concurrent powers and privileges.
4.5A. Duties of the Vice Chairman. The Vice Chairman of the Board
shall have all of the powers and duties which are granted herein to the
Chairman of the Board in the event that the Chairman of the Board is absent or
in the event the office of Chairman of the Board becomes vacant for any reason
until such time as the Chairman of the Board is able to exercise his powers
and to perform his duties or until such vacancy is filled. In addition, he
shall have such powers and shall perform such duties as may be assigned to him
by the Chairman of the Board or the Board of Directors.
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<PAGE>
4.6 Duties of the President. The President shall be the Chief
Operating Officer of the Corporation and shall have such powers and duties as
may be assigned to him from time to time by resolution of the Board of
Directors or by the Chairman of the Board.
4.7 Duties of the Executive Vice President. The Executive Vice
President shall have all of the powers and duties which are granted herein to
the President in the event that the President is absent or in the event the
presidency becomes vacant for any reason until such time as the President is
able to exercise his powers and to perform his duties or until such vacancy is
filled. In addition, he shall have such powers and shall perform such duties
as may be assigned to him by the President or the Board of Directors.
4.8 Duties of the Vice President. Each Vice President shall have such
powers and shall perform such duties as may be assigned to him by the
President or Board of Directors.
4.9 Duties of Secretary. The Secretary shall attend all sessions of
the Board and all meetings of the stockholders and act as clerk thereof, and
record all the votes of the Corporation and the minutes of all its
transactions in a book to be kept for that purpose; and shall perform like
duties for all committees of the Board of Directors when required. He shall
give, or cause to be given, notice of all meetings of the stockholders and the
Board of Directors, and shall perform such other duties as may be prescribed
by the Board of Directors or President, and under whose supervision he shall
be. He shall keep in safe custody the corporate seal of the Corporation, and
when authorized by the Board or President affix the same to any instrument
requiring it.
4.10 Duties of the Treasurer. The Treasurer shall have the custody of
all funds, securities, evidences of indebtedness and other valuable documents
of the Corporation; he shall receive and give or cause to be given receipts
and acquitances for money paid in on account of the Corporation and shall pay
out of the funds on hand all just debts of the Corporation of whatever nature
upon maturity of the same; he shall enter or cause to be entered in the books
of the Corporation to be kept for that purpose full and accurate accounts of
all monies received and paid out on account of the Corporation and, whenever
required by the President or the Board, he shall render to the President and
Board, at the regular meetings of the Board, or whenever they may require it,
a statement of his cash accounts and an account of all his transactions as
Treasurer and of the financial condition of the Corporation; he shall keep or
cause to be kept such other books as will show a true record of expenses,
losses, gains, assets and liabilities of the Corporation; he shall, unless
otherwise determined by the Board, have charge of the original stock books,
transfer books and stock ledgers and act as transfer agent in respect to the
stock securities of the Corporation; and he shall perform all the other duties
incident to the office of Treasurer of a corporation. He shall give the
Corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the Board shall prescribe.
4.11 Vacancies. If the office of any officer or agent, one or more,
becomes vacant for any reason, the Board of Directors may choose a successor
or successors, who shall hold office at the pleasure of the Board.
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<PAGE>
ARTICLE V. Indemnification.
5.1 The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a Director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
if he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
5.2 The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) and amounts paid in settlement actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
5.3 For purposes of indemnification eligibility under Sections 5.1
and 5.2 hereof, and without limiting the foregoing, service as a director,
officer, employee, committee member, or agent, in a corporation, partnership,
joint venture, trust or other enterprise, 50% or more of the voting stock or
equitable interest of which shall be owned by this Corporation, shall be
deemed to be service at the request of the Corporation, unless the Board of
Directors shall otherwise determine.
5.4 To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 5.1 and 5.2 hereof, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection therewith.
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<PAGE>
5.5 Any indemnification under Sections 5.1 and 5.2 hereof (unless
ordered by a court) shall be made only as authorized in the specific case upon
a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable
standard of conduct set forth in Sections 5.1 and 5.2 hereof. Such
determination shall be made (1) by the Board of Directors by a majority vote
of a quorum consisting of Directors who were not parties to such action, suit
or proceeding, or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested Directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
5.6 Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking
by or on behalf of the Director, officer, employee or agent to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article 5.
5.7 The indemnification and advancement of expenses provided by, or
granted pursuant to, the other Sections of this Article shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any other by-law, agreement,
vote of stockholders or disinterested Directors or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding such office.
5.8 The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out
of his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article.
Such insurance may be in addition to any other insurance or benefit which the
Board of Directors may from time to time determine to be appropriate.
5.9 For purposes of this Article, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this Article with respect
to the resulting or surviving corporation as he would have with respect to
such constituent corporation if its separate existence had continued.
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<PAGE>
5.10 For purposes of this Article, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan;
and references to "serving at the request of the Corporation" shall include
any service as a Director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such Director, officer, employee,
or agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to
in this Article.
5.11 The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
Director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE VI. Corporate Records and Statement.
6.1 Records. There shall be kept at the principal office of the
Corporation an original or duplicate record of the proceedings of the
stockholders and of the Directors, and the original or copy of its By-Laws,
including all amendments or alterations thereto to date. An original or
duplicate share register shall also be kept at the principal office or at the
office of its transfer agent or registrar, giving the names of the
stockholders, their respective addresses, and the number and classes of shares
held by each. The Corporation shall also keep appropriate, complete and
accurate books or records of account, which may be kept at its principal
office.
6.2 Annual Statement. The President and Board of Directors shall
present at each annual meeting of stockholders such statement of the business
and affairs of the Corporation for the preceding year as they shall deem
appropriate.
ARTICLE VII. Share Certificates, Transfer of
Stock, Dividends, Etc.
7.1 Issuance. The Board of Directors shall have the power, by
resolution duly adopted, to issue from time to time, in whole or in part, the
kinds or classes of shares authorized in the Certificate of Incorporation.
Share certificates shall bear the signature of the Chairman of the
Board or the Vice Chairman of the Board or the President and the signature of
the Secretary and the corporate seal, which may be a facsimile, engraved or
printed. Where such certificate is signed by a transfer agent or a registrar,
the signatures of the Chairman of the Board or President and the signature of
the Secretary on such certificate may be a facsimile, engraved or printed.
7.2 Transfers of Shares. Transfer of shares shall be made on the
books of the Corporation upon surrender of the certificates therefor, endorsed
by the person named in the certificate or by attorney, lawfully constituted in
writing. No transfer need be made inconsistent with the provisions of the
Uniform Commercial Code or other applicable Federal, State or Local Law.
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<PAGE>
No transfer or assignment shall affect the right of the Corporation
to pay any dividend due upon the stock, or to treat the registered holder as
the holder in fact, until such transfer or assignment is registered on the
books of this Corporation.
7.3 Closing of the Books. The Board of Directors may close the books
of the Corporation against transfers of shares during the whole or any part of
a period not exceeding sixty (60) days, and in such case, written or printed
notice thereof shall be mailed at least ten (10) days before the closing
thereof to each stockholder of record at the address appearing on the records
of the Corporation as supplied by him to the Corporation for the purpose of
notice. While the stock transfer books of the Corporation are closed, no
transfer of shares shall be made thereon.
7.4 Absolute Owner. The Corporation shall be entitled to treat the
registered holder of any shares as the absolute owner thereof, and accordingly
shall not be bound to recognize any equitable or other claim to, or interest
in, such share, on the part of any other person, whether or not it shall have
express or other notice thereof.
7.5 Lost, Destroyed or Mutilated Certificates. In the event that a
share certificate shall be lost, destroyed or mutilated, a new certificate may
be issued therefor upon such terms and indemnity to the Corporation as the
Board of Directors may prescribe.
ARTICLE VIII. Miscellaneous Provisions.
8.1 Signatures on Checks. All checks or demands for money and notes
of the Corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
8.2 Securities of Other Corporations. The President, or the
Secretary, shall have full power to vote, appoint proxies, or otherwise
perform any act as a stockholder with respect to any shares or other
securities of any corporation owned by this Corporation, including the power
to sell, convert, exchange, pledge or encumber such securities.
8.3 Fiscal Year. The fiscal year shall begin the first day of July of
each year.
8.4 Seal. The corporate seal shall be circular in form and shall
contain the name of the Corporation, the year of its creation and the words
"Corporate Seal-1969-Delaware." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE IX. Amendments.
9.1 These By-Laws may be altered, amended or repealed by a majority
of the members of the Board of Directors, or by the holders of a majority of
those Common Shares (plus such other shares as may then be entitled to vote
with the Common Shares) present in person or by proxy at any regular or
special meeting duly organized.
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<PAGE>
Exhibit 22
----------
Subsidiaries of Registrant
- --------------------------
The Company owns all of the outstanding stock of the subsidiaries
listed below, each of which is included in the Consolidated Financial
Statements of the Company. All other former subsidiaries of the Company were
either merged with and into the Company or a subsidiary of the Company listed
below.
Name State of Incorporation
---- ----------------------
A.P. Orleans, Inc. Pennsylvania
A.P. Orleans, Inc. New Jersey
Fawn Hollow, Inc. Pennsylvania
FPA Mortgage Corporation Florida
FPA Mortgage Investments, Inc. Florida
FPA Voorhees, Inc. New Jersey
Orleans Construction Corporation Pennsylvania
Orleans Corporation Pennsylvania
Orleans Corporation of New Jersey New Jersey
Orleans Property Management Services Corp. Pennsylvania
Quaker Sewer, Inc. Pennsylvania
Timber Glen, Inc. New Jersey
Versailles at Europa, Inc. New Jersey
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-87694, 33-87696, 333-59917, 333-59925) of
Orleans Homebuilders, Inc. of our report dated September 14, 1998, appearing on
page 21 of this Form 10-K.
Philadelphia, PA /s/ PricewaterhouseCoopers, LLP
September 25, 1998
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